Under Armour (UAA), once the market’s favorite stock that could do no wrong, continued its steady and sharp move downward as the company revised its full expectations lower due to weak demand in the U.S.
Under Armour missed third-quarter analyst estimates at the top line while bottom-line numbers came in better than expected. The stock has already lost nearly half of its value in the last 12 months, and the third-quarter earnings have done nothing to help the company arrest its valuation slide.
Under Armour reported adjusted earnings per share of 22 cents on the back of $1.4 billion in revenue while the market was expecting adjusted earnings per share of 19 cents and revenue of $1.5 billion.
The recent trend of weak growth numbers from the U.S. and strong growth numbers from international markets continued during the third quarter as well. Third-quarter revenue was down 5% to $1.4 billion as sales from North America plunged by 12.1%, but strong double-digit growth in international markets helped Under Armour somewhat offset its declining U.S. sales.
The double-digit downward slide is certainly scary because the footwear market in the U.S. is seeing intense competition between adidas (XTER:ADS, Financial), Nike (NKE, Financial) and Under Armour. To make matters worse, Under Armour’s rate of decline accelerated to double digits in North America during the third quarter after the company reported a 0.4% decline in the first two quarters.
Under Armour clearly didn’t expect the rapid pace of decline and had to readjust its full-year expectations. The company now expects full-year revenue growth to be in the the low single-digit range, down from the previously expected 9% to 11% range. Just two years ago, Under Armour was consistently reporting above-20% quarterly growth rates, but those high growth rates now seem to be long gone history for the company.
"While our international business continues to deliver against our ambition of building a global brand, operational challenges and lower demand in North America resulted in third-quarter revenue that was below our expectations," said Under Armour Chairman and CEO Kevin Plank. "Based on these issues in our largest market, we believe it is prudent to reduce our sales and earnings outlook for the remainder of 2017."
Under Armour still makes the bulk of its revenues from the North American market. During the third quarter, sales from North America accounted for 76.6% of overall sales. As long as North America sales numbers keep declining, Under Armour’s revenue growth will remain under pressure as will its stock price even though international sales continue to grow at strong double-digit rates.
Both Under Armour and Nike are going through a phase of course correction forced on them by adidas. Both companies have slashed their workforces, but restructuring efforts are only going to help improve their bottom-line numbers while the real problem lies in the top line. Unless both these companies are able to get their sales numbers back on track in the U.S., expect their stocks to keep edging lower and lower.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
