Under Armour: Nothing Seems Right At The Moment
Under Armour (NYSE:UA) has had a rather tough year so far, and Q3 was no less. The company fell dramatically short of the expected revenue figure, while earnings missed by 3 cents. Further, the top line came in lower by about 4% year-over-year. Revenues were hurt on weaker North American demand spurred on by changing consumer trends. Business in the U.S. and Canada plummeted by close to 12% year-over-year this quarter.
Given the way things are, management has decided to slash the guidance significantly. The company lowered its full-year earnings per share forecast down to $0.18 to $0.20 from previous estimates of $0.37 to $0.40. This sent shares free-falling by more than 20% since the call, marking its lowest valuation in over 5 years.
The performance represents a stunning fall from grace for the sportswear manufacturer that only last year was gaining market share at the expense of main rivals Nike and Adidas.
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What Went Wrong?
As mentioned above, the North American market has been hit hard over the last few quarters on sluggish demand that has weighed consistently on the top line, leading to a severe build-up in inventory. To clear out this build up in stock, management resorted to selling products at heavily discounted prices and offering higher promotions than usual. Both strategies hurt the company’s financials significantly, forcing management to cut their full-year earnings per share guidance in half.
Only last year, CEO Kevin Plank emphasized the company’s aim to vie for long-term opportunity, opposing short-term gains at the expense of continued growth. However, things don’t seem to be going as planned at all, and the current aforementioned strategies are a testament to this fact.
The company resorted to these measures in an attempt to appease investors who are growing increasingly worried about the falling top line. Instead of carrying forward with its plans to create innovative products, focus on targeted marketing, and expanding internationally, the company went away from this long-term strategy to focus on short-term gains.
That said, the company has highlighted several strategies that could potentially help the financials going forward. We will elaborate on these possible strategies in our next article.
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