Under Armour (UA: $19.50) is down 22% as we write this, after its sales forecast missed analysts’ estimates by a wide margin. The company said that ales this year will increase as much as 12% to $5.4 billion. Analysts were expecting $6.05 billion. Revenue rose just 12% to $1.3 billion last quarter, marking the smallest year-over-year gain since 2009 and trailed analysts’ $1.4 billion average estimate. Earnings were 23 cents a share, missing analysts’ 25-cent average estimate.
Under Amour, which has doubled its sales about every three years, is now having a hard time maintaining that rapid growth. The increased popularity of athletic wear as everyday apparel has brought many new competitors. Under Armour is facing much more competition in its core business of clothing, which still accounts for about 70% of its sales. The company also took a hit last year when one of its largest customers, Sports Authority liquidated.
Kevin Plank, the company’s chief executive officer and founder, said that they will be opening retail stores as well as increasing spending on technology, all of which will cause profits to be under pressure for years to come.
We received an email this morning:
Hi Todd
UA is getting crushed this morning.
Any thoughts?
I'm inclined to buy more for the long haul but curious for your opinion.
Thanks
Adam Harder
PS - I understand the miss and growth adjustment moving forward but I still think this seems like an over-reaction. The only things my son wears are made by under armour and that's the case for his entire class as well. I don't see the brand disappearing.
Our response:
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"Hi Adam - This is VERY disappointing. VERY devastating. The company has been a solid performer for years and years and now this. Revenues were really not bad. It looks like future revenues will be lower than their normal 20% growth, but the fact remains that they make good, solid products and should do well in the coming five years. But waiting for the stock to rebound is going to be painful, because it is not going anywhere for months and possibly years. We would buy more here but we would be prepared to buy more at $15 and possibly $12. The market is getting spooky lately with the new president and his actions so anything is possible."
Unfortunately, we are removing Under Armour from our Stocks for Success portfolio. We added the stock a year ago at $40; it hit $46.50 in April and has moved steadily lower ever since. Today’s move is the straw that broke the camel’s back. We hate to see such a great company get hurt so badly