Facing a weak U.S. apparel market, Under Armour is expected to show its first-ever operating loss as a public company when it reports financial results this week, a Stifel analyst said.
Analyst Jim Duffy maintained a hold rating on the stock and a target price of $19 per share for the Baltimore-based sports apparel and footwear maker. The company plans to report earnings for the first three months of the year Thursday.
Duffy said he expects first quarter sales of $1.1 billion and a net loss of 3 cents per share. Sales growth has been driven by international demand and the introduction of Under Armour products in Kohl's stores, which should somewhat offset retail weakness and the loss of The Sports Authority as a sales channel, the report said.
Profit margins will be squeezed by a highly promotional retail environment and a greater mix of lower-margin footwear and international products, the analyst said.
He noted that the first quarter accounts for only about a fifth of estimated annual sales and said he expects a return to profitability in the second half of the year.
"We believe investor expectations for sales and profitability have been reset, and [the first quarter] should be carried by sell-in to Kohl's, continued momentum in footwear," international sales and the ecommerce and branded store channels.
Under Armour had ended a long streak of quarterly sales gains in excess of 20 percent last holiday season and cut its sales growth target in half for 2017, sending its stock down 26 percent when it reported fourth quarter 2016 earnings in January.
The company blamed a sluggish holiday season, a shifting retail landscape and merchandise miscalculations for a slower pace of sales that fell short of the big quarterly gains it had reported for nearly seven years.
Under Armour has gained market share in the footwear category, but slower sales of Stephen Curry basketball shoes and "consumer preference for lifestyle oriented footwear product may make 2017 a difficult year," Duffy said.
"We expect footwear growth to outpace apparel, but could become a risk later in the year without improved consumer reception to product," the report said. "We remain enthused about brand potential in new categories and geographies though financial commitments increase risk of margin compression if growth can't re-accelerate."