The market appears to be giving Under Armour Inc (NYSE:UA, NYSE:UAA) another chance. The UA stock price touched a four-year low in November, soon after yet another earnings disappointment on Halloween. Yet, amid a retail rally, the UA stock price has surged, gaining 30%, including an 8%+ jump on Friday.

I’m on record as being highly skeptical of the rally in this sector. We’ve seen serial disappointer Abercrombie & Fitch Co. (NYSE:ANF) double, for little reason. Results from Under Armour partner Kohl’s Corporation (NYSE:KSS) show why the retail sector is in so much trouble — and why investors are being far too sanguine about it.

I firmly expect these stocks to give back their gains — and that goes double for UA. This is a declining business in desperate need of a turnaround. But there’s no sign of that turnaround on the horizon. If anything, the slashed guidance coming out of  its third-quarter earnings report suggest the UA stock price has further to fall. All told, I’ve been bearish on Under Armour for most of this year — and I see no reason to change that outlook.

UA Stock Price Masks Declining Business

The long plunge in the UA stock price isn’t just a matter of the stock getting a bit too expensive at the peak, or expectations coming down modestly. Fundamentally, this is a very different business.

Even during a disappointing 2016, revenue still increased 22 percent year-over-year, including 16% growth in North America. Under Armour was solidly profitable, with non-GAAP earnings per share (across all three classes of stock) of 58 cents. There were concerns, including lower gross margin and decelerating growth, but Under Armour still was a growth stock of some kind.

That’s simply not the case this year. Revenue declined YOY in Q3, and is guided up “a low single-digit percentage rate” for the full year. Even that modest increase has been driven by discounting. Adjusted gross margin is guided down 190 basis points this year, on top of a 160 bps compression a year ago.

In other words, gross profit dollars are going to decline for the year — as they have through the first three quarters. And that’s a huge problem for UA stock. First, it offsets the efforts so far this year to control operating expenses and benefit margins, a key reason why operating income is guided to decline by close to two-thirds YOY.

Secondly, it shows that Under Armour is losing pricing power. That’s not a problem attributed solely to competition from Nike Inc (NYSE:NKE) and adidas AG (ADR) (OTCMKTS:ADDYY) or broader retail weakness. For instance, Lululemon Athletica inc. (NASDAQ:LULU) has seen its gross margin rise nicely this year, thanks to both lower costs and pricing strength. That’s one key reason why LULU is at a 52-week high and the UA stock is bouncing off a multi-year low.

An Under Armour Turnaround?

So, any buyer of UA at these levels — with the UA stock price at a whopping 70 times the midpoint of full-year EPS guidance — has to believe in a turnaround. To be fair, Under Armour is making changes. It’s tried to better control costs this year, including through a restructuring announced in August. Several senior executives have left.

But it’s clearly not close to enough, as Q3 results show. North America revenue is declining. The footwear business is fading, with basketball down in Q3. Under Armour’s brand simply isn’t what it was. And there’s a real question as to whether it’s broad enough to support the sales necessary to support even the current UA stock price.

From a fundamental standpoint, there’s just not a lot of room to grow earnings sharply, either. Sales growth is unlikely to accelerate back into the double-digits, even with continuing strong performance overseas. Gross margins aren’t going to move up in this retail environment, with increasing direct-to-consumer penetration providing another headwind. SG&A cuts are coming, but there’s likely not a lot of fat to cut. Even tax reform isn’t that big a deal for Under Armour, which is guiding for a ~23% effective tax rate this year.

Hope Is Not a Strategy

The current UA stock price still is pricing in a significant turnaround. And yet there’s no evidence of that turnaround occurring. Under Armour’s innovation edge has been undercut by Nike and a host of copycats. Women’s apparel was supposed to provide an additional growth driver, yet that business too declined in Q3.

Margin improvement is unlikely. Tax reform isn’t helping.

That leaves one simple question: what exactly are Under Armour investors betting on? The answer seems clear: hope.

And that’s not anywhere close to enough.

As of this writing, Vince Martin has no positions in any securities mentioned.