Under Armour Inc.’s (UAA, Financial) (UA, Financial) downturn started in September 2015. Since then, the stock has lost more than 85% of its value. It trades at a level not seen since its all-time low in March 2009.
Under Armour reported disappointing third-quarter results on Oct. 31. For the quarter, the athletic apparel and footwear maker reported earnings per share of 22 cents, beating the analysts' estimate by 3 cents. On the other hand, its revenue came in at $1.40 billion, missing the consensus by $80 million.
That figure represents a drop of almost 5%. The most significant thing to notice is that Under Armour’s top-line growth turned negative for the first time in the third quarter. The primary reason behind the revenue drop was weaker-than-expected demand for its products across the U.S. and Canada.
In the third quarter, the company’s North America sales plunged a whopping 12% whereas revenue from its international segment grew 35%. The company currently generates more than 70% of its total revenue from its domestic market, and such a substantial weakness in North America cannot be simply equipoised by the growth in other regions.
On the other side, the revenue generated from its footwear segment rose just 2%. Apart from this, the company’s revenue was also hurt by $85 million charges that it booked for restructuring efforts.
Moving ahead, the athletic apparel and footwear maker delivered a net profit of $54.2 million, less than half compared with a year ago. Its gross margins plunged 160 basis points to 45.9% as benefits from the change in currency rates and product costs were more than offset by pricing as well as other inventory initiatives.
To make matters worse, Under Armour also reduced its full-year guidance for revenue and earnings. The company now expects top-line growth in the low-single-digit range. All this caused shares of Under Armour to fall more than 18%.
Summing up
Shares of Under Armour have been on a downhill run over the past couple years, and there are still no apparent signs of its turnaround. It is true that Under Armour’s chief rivals Nike (NKE, Financial) and Skechers (SKX, Financial) are also facing problems due to the changing industrywide environment, but they have managed to remain in the green this year.
The athletic apparel and footwear maker’s third-quarter results disappointed on all fronts with earnings and revenue down significantly year over year. Under Armour is facing fierce competition from its rivals, and things are increasingly becoming complicated for the company. Although the company’s restructuring has started, it cannot be certainly said that it will reap fruitful results in the upcoming quarters.
The stock currently trades at a price-earnings (P/E) ratio of 28. Although Under Armour may look cheap at current levels, I would recommend shareholders watch the stock from the sidelines and wait until the company shows meaningful signs of a turnaround before initiating a position.
Disclosure: No positions in the stocks mentioned in this article.
