Under Armour’s (UAA) shares are up 16% on Tuesday on the strength of better-than-expected fourth-quarter results, but it’s premature to pop the champagne.
The sportswear maker gave investors some relief by reporting total sales rose 4.6% to $1.37 billion in its fourth quarter, a return to growth after Under Armour reported its first ever sales decline as a publicly traded company in the preceding quarter. (For the year, they were up 3% to nearly $5 billion.) What’s more, Under Armour said it expects sales in 2018 to increase by a low single-digit percentage.
But that is a big slowdown from Under Armour’s no-so-long-ago explosive growth and any uptick is due to strong sales growth in emerging markets. In North America, its largest market by a country mile with 80% of sales, Under Armour is still facing enormous challenges, not least of which is market share lost to everyone from Adidas (which saw its U.S. footwear sales soar last year, much of that at Under Armour’s expense), to Lululemon Athletica (LULU) and a Nike (NKE) intent on getting back on track.
It will also soon face more competition from Dick’s Sporting Goods (DKS) a key retail partner also now pushing its own brands, while Lululemon continues to build up its men’s business. Meanwhile, Under Armour’s entry into Kohl’s (KSS) stores last year doesn’t appear to have moved the needle much for Under Armour and indeed some analysts think that the move, while helpful to Kohl’s, may have created a sense of ubiquity around the brand, hurting its desirability.
Still, there are some hopeful signs one can latch onto. Wall Street firm Jefferies said in a research note after the earnings report that its data has found lower levels of discounting, something that would be supported by the modest improvements in Under Armour’s gross merchandises expected in 2018. What’s more, Under Armour is reining in its unwieldy assortment, eliminating 40% of individual products, a move that will likely simply supply chain and make inventory management easier. Analysts are also optimistic about Under Armour’s e-commerce push.
At the same time, the fact remains that the company expects a “mid-single-digit” percentage decline in North American sales. So despite signs that suggest the worst is behind Under Armour, it faces another year of market share that will be very hard to recover.
