Under Armour Disappoints, Again (UAA)

Like every other retail name out there, the past few months have dealt a sledgehammer blow to Under Armour’s (NYSE: UAA) sales and revenue. As a non-essential business, their brick n’ mortar stores have been shuttered since the coronavirus pandemic took hold of the world’s economy and investors haven’t been slow about doing the math on what that means for the company’s prospects.

After a dismal miss on their Q4 earnings in February, shares were already falling as equity markets around the world began to crash in the face of the coronavirus shutdown. Through their lows of last month, they fell more than 60% and were back trading at 2011 levels. Coming into yesterday’s release, they had managed a 30% bounce but compared to the likes of Lululemon (NASDAQ: LULU) who are up 90% from their lows or Nike (NYSE: NKE) who are up 50%, it was a short change for investors.

Bad Habits Continue

As we wrote last February after the company reported their Q4 numbers, “history repeats itself and for Under Armour, an ugly history is repeating itself and a bad habit is forming”. Unfortunately, they haven’t broken the habit yet. Q1 numbers were always going to be bad, but few saw it being this bad. Under Armour’s Q1 EPS and revenue estimates had seen 17 downward revisions and none upwards over the past three months. The consensus EPS number that analysts were expecting forecasted a hefty 480% contraction compared to Q1 last year.

On top of that, coming into the official release before Monday’s session, there were reports that the sports apparel company was in the process of renegotiating its sports marketing contracts and trying to delay payments to its athlete endorsers. Suffice to say, things must have been pretty grim in the company’s Baltimore headquarters in recent weeks.

When the band aid was ripped off on Monday morning, GAAP EPS, which had been expected to be -$0.22, came in about five times lower at -$1.30. Revenue missed as well and showed a 22% contraction compared to the same time last year. Management unsurprisingly laid the blame at the feet of the coronavirus pandemic. CEO Patrik Frisk said with the release, “during the first quarter, our results in January and February were tracking well to our plan. Since mid-March, as the pandemic accelerated dramatically in North America and EMEA and retail store closures ensued, we've experienced a significant decline in revenue across all markets."

Interestingly, the release stated that of the 22% fall in revenue, “approximately 15 percentage points of the decline was related to COVID-19 pandemic impacts in the quarter.” That’s a tough gap for investors to reason with and you wouldn’t blame them for not sticking around.

Don’t Look Down

Trading down as much as 14% at one point, the stock was one of the worst performers on the S&P 500 index in Monday’s session with additional revenue related comments from management about adding fuel to the dumpster fire. They’re forecasting Q2 revenue to fall by as much as 60% compared to last year which is double what analysts were expecting.

For a company that was already struggling to remain competitive against the industry leaders, this pandemic and economic slowdown comes at the worst possible time. Telsey Advisory analyst Cristina Fernandez commented after the release that “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”.

Susquehanna analyst Sam Poser pasted a fresh $4 price target on the stock which would be more than a 50% drop from these already depressed levels. His argument focused on how “UAA could continue to lose market share to Nike, Adidas, and others who garner greater brand consideration and more financial flexibility”.

We’ve heard the death knell of some big retail names already who were unable to weather the storm, Under Armour will need to fight hard to avoid the same fate.