Under Armour investors are pivoting away from the stock on Friday amid concerns the brand’s newest Stephen Curry basketball shoes may be selling at a slower pace than prior iterations.
The company’s shares tumbled over 5%—one of the worst stock declines among the S&P 500 index on Friday—after key footwear retailer Foot Locker (FL) signaled the debut of the latest Curry shoe hadn’t been as hot as prior basketball launches. That’s a big deal because Under Armour (UA) has invested heavily to build up a brand around the Curry name, selling the first signature basketball shoe and apparel back in February 2015. Subsequent shoes have sold well.
“I think Under Armour is doing a great job investing in their footwear business,” Foot Locker Chairman and CEO Dick Johnson said on Friday in a presentation with analysts. “The 2.0 and 2.5 Curry shoes in the third quarter performed well. The 3.0 is fairly new into the business. It started off a bit slower than the two previous models.”
He went on to add that it was still early in the launch. Johnson said he expects that Under Armour would remain committed to the footwear business—with the asset they have in Curry and potentially more platforms built around other athletes down the road.
The reason Wall Street analysts may be reacting so harshly to those comments from Foot Locker may be because there’s a lot riding on the success of Curry’s shoes and apparel. The argument had been that Under Armour could be more competitive in the world of basketball footwear by establishing a marquee name like LeBron James or Michael Jordan. That halo of coolness could help generate broader interest in the Baltimore-based company’s brand in other categories. Those marquee shoes also come with generally high price points, as so-called sneakerheads are very loyal to scooping up the latest stylish basketball shoes for their collections.
Footwear has been an increasingly lucrative business for Under Armour. It generated $786 million in revenue for the first nine months of 2016, far smaller than apparel’s $2.3 billion haul. But sales increases for footwear are far stronger: up 54% vs 19% for apparel.
Under Armour’s stock has faced some pressure in recent months, especially after the company late last month warned investors that growth would slow over the next two years. The Curry news—which came from Foot Locker, a key retail partner that has established a market-leading position as a seller of basketball shoes—likely further fanned the flames of concerns around the stock.