Under Armour's Wild Ride Is Just Beginning
Under Armour Inc. shareholders went on a wild ride Thursday, as this year's worst-performing stock in the S&P 500 spiked by 10 percent in early-morning trading, only to see the gains deflate by the opening bell. Then the stock ran right back up by about 9 percent.
Shareholders might as well stay buckled up, because this company's twists and turns are unlikely to temper any time soon.
Thursday's whiplash was a result of the expectations game Wall Street likes to play. Under Armour posted its first-ever quarterly loss since going public in 2005. But because the 1 cent loss wasn't as bad as the 4 cent consensus forecast, shares rallied. Expectations had become so downbeat on the stock, as I pointed out earlier this month, that anything better than garbage was met with glee.
But smart shareholders read through the company's cheerleading and zeroed in on an important statistic: Under Armour's shoe sales grew by just 2 percent this quarter from a year ago, well below the high teens many analysts expected.
Under Armour has been trying to become a dominant sneaker seller in recent years, building a franchise around basketball superstar Stephen Curry. At the same time, though, Adidas has regained a foothold in the U.S. sneaker market. The German sportswear seller had basically napped in America for the better part of a decade, letting upstart brands such as Under Armour and Lululemon Athletica Inc. steal market share. But under new leadership, Adidas has retooled its brand and turned its retro chic Superstar sneaker into the highest-selling shoe in the U.S. last year.
Under Armour on Thursday admitted the release of the Curry 3 shoe fell flat with consumers in the latest quarter, leading to softer-than-expected results and an inventory buildup that will weigh on margins this year.
It was encouraging that Under Armour's typically brash and cocky CEO Kevin Plank dialed back the overconfidence on the call, admitting there was work to be done on the Curry shoes and throughout its footwear business. It was also a good sign that Under Armour's business didn't sink any further than already lackluster expectations.
But the path back to the headline-grabbing growth Under Armour has enjoyed recently isn't exactly linear.
It's going to take time to get back into shoppers' good graces, especially as the competition in athleisure ratchets up. The pain among retailers selling Under Armour's gear is unlikely to abate as more chains are expected to declare bankruptcy this year. And if Under Armour spends too much time chasing fashion growth at the expense of its technical gear, then it could lose some of its most loyal customers.
It's more likely we'll continue to see growth come in fits and starts before Under Armour is able to kick its sneaker business, and itself, back into high gear.
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