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

Is Under Armour making strides toward rebounding from struggles? Analysts are divided.

Under Armour is drawing mixed reviews for efforts to rejuvenate sales through a restructuring, which has meant layoffs and other steps to rein in the once rapidly growing brand’s expenses.

The Baltimore-based athletic apparel maker is set to announce third-quarter financial results Tuesday. Wall Street analysts are expecting earnings of 12 cents per share on sales of $1.4 billion.

Under Armour has struggled since the end of 2016 amid intense competition, closures of key retailers and changing consumer tastes in sports apparel.

“The period of 2016-2018 has been difficult for Under Armour, though we believe there is building evidence of a light at the end of the tunnel looking into 2019,” said Jim Duffy, an analyst with Stifel Financial.

Stifel, which has a “buy” rating on the stock, said in a report last week it expects Under Armour’s profit margins to recover next year. That’s despite the brand’s continued struggles with U.S. sales, which Stifel expects to be off by more than 6 percent. By contrast, analysts expect Under Armour to report a continuing surge in sales in international markets.

Other analysts, though, have seen too little improvement to reconsider “sell” ratings on Under Armour stock.

Camilo Lyon, an analyst with Canaccord Genuity, said in a Friday report that the modest growth he’s expecting appears to come from accessories and connected fitness, not key shoe and apparel categories. And he’s concerned that the lack of fresh products along with heavy discounting may be eroding the brand’s appeal.

“From a product perspective, we have not seen any promising launches outside of the HOVR [running shoes] and The Rock collection, both of which lack the scale to make a material contribution,” Lyon said. “Our discussions with industry contacts indicate there is little excitement around the product pipeline next year as well. Thus, we fear [Under Armour’s] representation at its major retail partners will continue to decline next year.”

He also expected profit margins to be hurt by a higher mix of discounted sales as Under Armour works to sell off excess inventory.

Sam Poser, an analyst with Susquehanna Financial Group, also raised concerns about “bloated” inventory and “few compelling new product offerings” that could make it harder to reach sales and earnings goals.

Management, he said in a report last week, has underestimated the difficulty of selling off excess inventory and will need to offer even steeper discounts. Already, he noted, heavy discounting appears to be happening, particularity at family/moderate channel stores such as Kohl’s and Famous Footwear.

“Poor product distribution decisions continue to undermine the brand,” Poser said of Under Armour. “Our recent checks indicate that footwear sales are exceptionally weak and do not appear to be improving. Apparel sales, while better than footwear, are being buoyed by promotional activity.”

Meanwhile, Under Armour is up against big improvements in footwear and apparel from rival Nike and continued strength in Adidas clothing, Poser said.

Since the end of the second quarter, Duffy noted, Under Armour has updated its restructuring plans, including laying off 400 workers globally by early next year, signed emerging NBA star Joel Embiid and other high profile rookies, and appointed investor Mohamed El-Erian to its board.

But, at the same time, the brand has run into trouble with top retail customers Dick’s Sporting Goods and Hibbett Sports, where its products appear to be losing shelf space, analysts said. In August, Dick’s said it had seen “significant declines” in Under Armour sales, an issue attributed to expanded distribution into discount department store chain Kohl’s.

“The increasing amount of product being sold in the moderate and off-price channels is [damaging], and will continue to damage Under Armour brand's equity, in our view,” Poser said.

lorraine.mirabella@baltsun.com

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