Not surprisingly, the retail sector was one of the hardest hit during the initial strike from the novel coronavirus. With consumers all but focused on the essentials, discretionary purchases fell by the wayside. However, some powerful brands have managed to recover due to their wider appeal. Unfortunately, though, that doesn’t apply to Under Armour (NYSE:UA, NYSE:UAA). And even before the pandemic, Under Armour stock struggled against the competition.
But now, another cruel event has devastated the embattled athletic apparel company. With several professional sports leagues returning to play, many fans had hoped for a full slate of college football games. Like most things in 2020, though, the coronavirus had other plans. And as a result, the top two college football conferences will postpone their fall seasons.
Of course, this is devastating for the entire football community. And with this, sports apparel rivals such as Nike (NYSE:NKE) and Adidas (OTCMKTS:ADDYY) may lose significantly due to lost sponsorship opportunities. However, it’s not just the headline costs. Because of pent-up demand, more eyeballs would likely have been placed on college football. So, the organic marketing opportunity is particularly devastating to Under Armour stock.
That’s because UA has some serious catching up to do. As the third wheel in a two-brand race, the coronavirus was exactly the opposite of what the company needed. Also, slumping sales along with ugly revelations about its alleged toxic corporate culture has put a negative light on the brand. Theoretically, college football was supposed to bring some joy to Under Armour stock. Now, it’s looking like another disaster.
But as its trudging along in the markets, UA stock might appeal to contrarians. However, I’d rethink this idea — and here’s why.
Confusing Messaging Is Hurting Under Armour Stock
When you look at popular athletic apparel companies outside of context, you’d be forgiven if you thought that the coronavirus was a flash crash event rather than an unprecedented pandemic.
For instance, Adidas shares have jumped 69% since its closing low of March. Likewise, Lululemon Athletic (NASDAQ:LULU) has been one of the pandemic’s surprise winners — soaring 161% since this year’s doldrums.
In turn, you’d think that at least some of this love would go to Under Armour stock. Sadly, the situation is more complicated.
Because of the disappointing revenue results, Under Armour explored expanding its sales channels. One of the more notable (or is that notorious?) examples is its deal with Kohl’s (NYSE:KSS). Of course, the problem here is that Kohl’s has been steadily eroding consumer relevancy. Therefore, the brand dilution is really a deal with the devil.
Sure, there’s no way to predict these things, and this brand dilution came at absolutely the wrong time. With the pandemic, though, consumers are more careful about where they spend their discretionary funds. And because of the confusing brand messaging, Under Armour stock has been the odd man out.
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Just look at how UA shares have stacked up against the competition. Supposedly, Under Armour is a premium retail brand. But that idea contradicts its partnership with discount bin Kohl’s. Hence, Nike stock is up 33% on a monthly average comparison since March whereas Under Armour stock is up a lowly 9% during the same period.
However, Under Armour is also uncompetitive in the lower end. HanesBrands (NYSE:HBI), which owns the discount sports apparel brand Champion, has absolutely skyrocketed since the coronavirus correction. In fact, since March, HBI stock is up 103%.
I’m not shocked, though. Under Armour products are priced way too high to be sold at a place like Kohl’s.
No Market Identity for Under Armour
Many years back, I received a nasty email about my less-than-favorable take on Under Armour stock. From the commenter’s perspective, UA was the “it” brand. Everybody who is anybody was wearing Under Armour.
Of course, the evidence provided was completely anecdotal.
However, the problem today is that Under Armour practically has no market identity. Sure, you’re going to find consumers who like the brand. In fact, this year, I bought some UA swag myself. However, I’ll readily admit that I’m not your average sports apparel consumer. And, more importantly, the company has no niche base to address.
Clearly, it’s getting blown out of the water in the premium space with Nike and Adidas. And those who simply want cool threads but without the cost are looking to HanesBrands or other discount specialists. So, theoretically, Under Armour can fill the middle ground: quality goods at reasonable prices.
Perhaps that would have worked out pre-pandemic, but this market does not exist right now. And it might be a while before it materializes. So, until then, I’m going to avoid Under Armour stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
