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Under Armour Sinks After Forecasting Wider-Than-Expected Loss

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  • Inventory levels look like ‘a ticking bomb:’ analyst
  • Volatile stock drops as much as 7.6% after early-trading gains

Under Armour's Second Quarter Forcecast Worse Than Expected

Under Armour Inc.’s losses are mounting and investors are getting jittery about inventory management.

The maker of sporting goods, which had shown signs of rebound recently, forecast a loss of 9 to 10 cents a share after excluding some items in the second quarter. The outlook, provided by during a conference call Tuesday, was wider than the 6-cent loss estimated by analysts. It sent the stock down as much as 7.6 percent.

“The inventory levels appear out of control,” Sam Poser, an analyst at Susquehanna Financial Group, said in a research note. “The combination of high receivables and elevated inventory levels looks like a ticking time bomb to us.”

On the conference, Chief Financial Officer David Bergman assured investors that Under Armour is fixing a buildup of merchandise from last year, and any excess inventory will be cleared out by the end of 2018.

“We’re playing the long game with what’s in front of us,” CEO Kevin Plank said on the call.

The stock fell 5.9 percent at 9:48 a.m. in New York. In a volatile morning that highlighted investors’ anxiety about the company’s prospects, the shares had initially jumped in premarket trading following better-than-expected first-quarter results.

Under Armour has been battling stiffer competition -- mainly from Adidas AG -- which has slowed growth. While the stock is still way off its all-time highs of 2015, the company had shown some progress in recapturing its momentum recently.

Under Armour said it expected pressure on margins to continue in this quarter as it clears slow-moving inventory with discounts and unloading goods to off-price retailers. That disappointed investors, said Chen Grazutis, an analyst for Bloomberg Intelligence.

“They still have a large amount of inventory that they have to clear,” Grazutis said. “They are in a transition phase.”

The big test for company will come in the second half of the year, when the excess inventory will be gone, and it will attempt to re-focus on selling items at full price and boosting profit margins, Grazutis said.

— With assistance by Brandon Kochkodin

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