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The Armoury What's new with Baltimore sports apparel maker Under Armour

Discount store sales could hurt Under Armour's brand, analyst warns

Under Armour should do an about-face and pull its sports apparel and shoes out of Kohl’s, Designer Shoe Warehouse and Famous Footwear, all retailers where the brand has expanded this year, one Wall Street analyst is recommending.

Otherwise, the sports apparel maker risks diluting the strength of its brand and hurting profit margins, said Sam Poser, an analyst with Susquehanna Financial Group, in a pre-earnings report. The company will announce third-quarter earnings next week, following two straight quarterly losses.

Poser maintained a sell recommendation on the stock, which has lost more than 46 percent of its value so far this year.

“We contend that the decision to open distribution to the moderate channel coupled with the lack of compelling lifestyle product will result in brand erosion and marketing pressure,” Poser said.

The expansion will hurt sales most at retailers that Poser described as “brand-appropriate,” outlets such as Dick’s Sporting Goods, HIbbett Sports and Modell’s Sporting Goods, he said. Meanwhile, he said, the brand lacks a compelling message and faces stiff competition from rival Nike, which has been heavily promoting products and can better withstand intense price competition.

“Make no mistake, Nike smells blood in the water,” Poser said.

While he hopes management will “do what is right for the long-term health” of the brand, “unfortunately, we don't see any signs that a pullback in distribution will occur. Hence, the ‘brand-appropriate’ retailers are either shrinking the [Under Armour] business and or discounting [Under Armour] products,” Poser said in the report.

On Tuesday, analyst Victor Ahluwalia of CFRA Research also weighed in with a pre-earnings report, downgrading the company’s stock to a sell from a hold. Ahluwalia said stronger second-half sales growth in the international markets will be offset by the struggling sales performance in the U.S., a trend he expects to continue through next year. He noted that Under Armour counts on North America for 80 percent of its overall revenues.

Poser said product launches including the Curry 4, the signature basketball shoe of NBA superstar Stephen Curry, and the ArchiTech Futurist, a training shoe with a 3-D printed midsole, show that Under Armour’s design innovation may be improving.

“However improved design will be all for naught if [Under Armour] cant’ tell compelling stories and execute an effective distribution strategy,” Poser said.



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