Under Armour’s Problems Will Persist for a While

Performance apparel and footwear retailer Under Armour (NYSE:UA) is, so far at least, the definition of disappointment for long-term investors. Every time it feels like UA stock has finally hit rock bottom, it then takes another leg down.

Under Armor (UA) logo in front of Under Armour store in Baltimore Harbor East
Source: AuKirk / Shutterstock.com

One can’t always blame the company for this. The onset of the novel coronavirus had a profound and negative impact on the broader retail sector, and there’s no way that Under Armour could have predicted that a global pandemic would come along and decimate its financials in 2020.

On the other hand, not all of Under Armour’s problems can be blamed on the coronavirus. A recent development involving two higher-education institutions provides a case in point.

If a company’s reputation is everything in the business world, then UA stockholders may have a major cause for concern now.

A Closer Look at UA Stock

In September 2015,  UA stock was riding high on profits and hope for more gains. The buzz surrounding Under Armour on social media was at a fever pitch. UA shares traded above $100 and it felt like the company and its stock were unstoppable.

Those were heady times, but the euphoria wasn’t meant to last. The UA stock bubble popped and the shares dropped to $40 in 2016. The next year, the share price threatened to break below the $10 level. After that, the price wobbled and drifted for a couple of years.

UA stock was going nowhere fast during the first few weeks of 2020. Then the coronavirus pandemic battered the global economy and wreaked havoc on the American retail market. Since April, UA shares have been trapped in a range between $6.50 and $10.50.

The bulls really need a sustained breakout from that range before they can hope for a recovery to the pre-pandemic price of $18. However, it’s questionable whether the facts and circumstances warrant such a bullish move in the stock price.

Troubling Numbers

Few observers were predicted great results for Under Armour’s first quarter. The coronavirus made it practically impossible for the company to post strong stats.

Even with that black-swan event factored in, though, the numbers were stunningly bad. Specifically, Under Armour recorded a quarterly net loss of $589.7 million, which would equate to $1.30 per share.

As a means of comparison, we can observe that a year earlier, the company had posted a quarterly profit of $22.5 million, which translates to 5 cents per share. Moreover, during the first quarter of this year, Under Armour’s net revenue cratered 23%.

On top of that, Under Armour’s quarterly apparel sales fell 23% while the company’s footwear revenue (an important revenue source for Under Armour) fell 28%.

Self-Inflicted Wounds

UA stockholders, unfortunately, shouldn’t expect the company’s prospects to improve anytime soon. As Telsey Advisory Group analyst Cristina Fernandez explains, “With Under Armour having slower sales momentum than its competitors, we expect sales to be under greater pressure near-term and for its sales trend to take longer to recover.”

Making matters worse is a couple of broken deals that could damage Under Armour’s reputation. Reportedly, the company recently pulled out of potentially lucrative agreements with the University of California, Los Angeles, and the University of California, Berkeley.

Once vaunted as “the largest apparel deal in the history,” the sports-outfitting arrangements were supposed to be worth hundreds of millions of dollars. The partnerships should also have raised Under Armour’s profile as an emerging leader in professional sports apparel.

Instead, Under Armour pulled out and the company’s shareholders have every reason to be frustrated. Morningstar analyst David Swartz summarized it with eloquence: “It’s clearly a failure for Under Armour… They didn’t sign a 15-year, $280m contract just to terminate it four years later.”

The Bottom Line

A dire financial outlook and a terminated deal don’t bode well for UA stockholders. Just as Under Armour pulled out of a highly favorable arrangement, it’s probably best for the company’s shareholders to pull out and never look back.

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

Article printed from InvestorPlace Media, https://investorplace.com/2020/07/the-problems-with-ua-stock-will-persist-for-a-while/.

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