Setting aside the fact that Under Armour (NYSE:UAA) is reportedly under investigation by the U.S. Department of Justice and the Securities & Exchange Commission for accounting irregularities and the media reports of its toxic work culture, there is plenty for investors not to like about UA stock.
First, UA missed the boat on athleisure, one of the biggest trends to hit the fashion industry in years.
The company has positioned itself as a “performance brand” geared toward athletes and those who aspire to be them.
Company Founder and former CEO Kevin Plank vowed in 2018 to “double down” on performance though it “might be perceived as a weakness to others.” That strategy isn’t working out too well.
Missing Athleisure Trend
According to NPD Group data cited by Forbes U.S. sales of “sport-leisure” footwear rose 7% in the 12 months ended in August 2019, while technical performance footwear fell 7%. NPD Group also found that Under Armour’s share of the U.S. activewear market had shrunk from 6.4% to 5.6% through June 2019.
The company’s U.S. sales have slumped for five straight quarters while rivals such as Nike (NYSE:NKE), Lululemon (NASDAQ:LULU) and Adidas saw gains. LULU alone saw a 23% gain in third-quarter sales. B. Riley found that UA appeals more to older consumers, which in the youth-obsessed fashion world isn’t a good thing. are skeptical that the company can reverse these trends.
UA stock hit an all-time high of $51 in 2015 and has been a tailspin since then, plunging more than 55 percent. Wall Street analysts have a median 52-week price target of $20, an increase of about 8 percent over where it recently traded. With a multiple nearing 75, UA is nobody’s idea of a bargain even without its considerable baggage.
Unfortunately, the company isn’t going to change as long as Plank remains involved since he controls Under Armour through a dual-class stock ownership system. Plank stepped down as CEO last year and is the company’s chairman.
The Bottom Line on UA Stock
According to the New York Times, runners at colleges sponsored by the company refused to wear Under Armour sneakers because they were afraid they might get hurt because of their poor design. They even tried to exchange them at stores.
Runners have told me that they aren’t impressed with the quality of UA’s running apparel, which explains why rivals such as Champion dominate Amazon’s list of best sellers. UA’s footwear revenue slumped 12% in the last quarter, and apparel and accessories sales rose 0.7% and 1.7 %, respectively.
During the most recent quarter, UA slashed both its inventory and total debt by more than 20%. While that’s noteworthy, it isn’t enough of a positive for me to overlook UA’s many weaknesses. UA stock is headed nowhere fast.
Jonathan Berr doesn’t own any of the aforementioned stocks.
