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Analyst raises concerns about Under Armour's coming year

After struggling through 2017, Under Armour could be in for another rocky year, one Wall Street analyst is warning.

The Baltimore-based sports apparel brand started 2018 with an overload of excess inventory, which it likely will have to sell at discounted prices, said Camilo Lyon, an analyst with Canaccord Genuity, in a research report Friday. The brand also faces pressure from its two biggest rivals amid changing demand for athletic apparel.

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In the report, Lyon said he’s not convinced that Under Armour’s plans to rebound by becoming leaner and more responsive to consumers in developing and marketing shoes and apparel will work.

“We have heavy doubts that the near-term actions it is taking will result in the desired outcome of stability and profitable growth,” Lyon wrote.

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Selling marked-down products now could make consumers less willing to pay full price for the same workout gear later in the year, and in turn make Under Armour more dependent on selling through off-price retailers, Lyon said. That could hurt big wholesale customers such as Dick’s Sporting Goods, which already cited weak Under Armour sales for contributing to its own lackluster holiday season.

Under Armour, which has seen slower growth in U.S. sales since the the end of 2016, likely will continue that trend for the next two to three years as retail’s sports apparel sector consolidates, the report said. Dick’s, Under Armour’s biggest wholesale customer, has seen its store sales grow just 1 percent to 2 percent, and “we see no reason why [Under Armour] should outpace that rate,” Lyon said.

“What’s more, retailers are shifting square footage away from [Under Armour] to hotter brands,” such as Nike and Adidas, as well as private-label brands, all of which will hurt Under Armour, he wrote.

Lyon, who maintained a sell rating on the company’s stock, said his firm’s consumer research shows Under Armour’s footwear losing favor with both male and female consumers.

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The firm’s polls have asked, “What’s your favorite athletic/lifestyle footwear brand?”

In a December poll of more than 6,000 consumers, nearly half answered Nike, while just 16 percent answered Under Armour. In March, with more than 11,000 people polled, Nike’s popularity inched higher while Under Armour’s plummeted from 16 percent to 7 percent, the research showed.

“This is particularly disconcerting because footwear (along with international) is a key growth driver,” Lyon said.

And as if its own brand woes and market challenges aren’t making business tough enough, Nike seems to be going through a resurgence, Lyon said. Adidas, meanwhile, has been gaining market share and is still going strong.

“Adidas has become a more formidable competitor in recent years,” the report said. “The competitive pressure facing [Under Armour] at a time when its product is most susceptible to share losses will be difficult to combat without innovative product and marketing capital.”

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