Why We Believe Under Armour To Be Slightly Expensive At The Moment

by Trefis Team
Under Armour
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To say that Under Armour (NYSE:UA) had a rough 2017 would be a severe understatement. Over the past few quarters, a confluence of events that occurred in the North American athletic sector, including bankruptcies and store closures, declining productivity, traffic, and shifting fashion preferences, has contributed to declining sales in the U.S. and Canada, which accounts for over 70% of the company’s total sales.

That said, to counter the declining revenues, CEO Kevin Plank, announced plans to initiate a restructuring strategy (“a pivot”) that was implemented to potentially provide some relief to investors in the near future. He had many ideas in this respect, which included, but were not limited to, increasing the product offerings for women and children, focusing more on international markets, offering more lifestyle than performance apparel, and concentrating on increasing its direct-to-consumer channels; basically the opposite of everything the company had vied for in the past.

Much to investor’s relief, these initiatives have finally started reflecting on the company’s financials. In this respect, we’ve observed the company’s value jump by almost 40% since the beginning of the year. While the jump in stock price is definitely warranted, we believe that it is now slightly expensive. In this respect, we have created an interactive dashboard Is The Market Pricing Under Armour Fairly to best explain our methods and reasoning. Click on the link to come up with your own price estimate.

In general, Under Armour earns most of its revenues from four major segments: Apparel, Footwear, Accessories, and Licensing. We expect all segments to help the company improve financials through the remainder of the year and beyond.

The biggest revenue drivers, Apparel and Footwear, had been trailing in the past few quarters on a weak North American market. While the slowing demand locally has definitely weighed on overall revenues, a jump in international and DTC sales has helped the company buoy losses here. Additionally, the company has worked on improving its offerings to women and children, which seem to be helping push the sales figure further. All in all, we expect all these strategies to help drive the top line at Apparel and Footwear in the near term. In contrast, we expect the Accessories and Licensing businesses to grow at only a modest rate as the general wearables market suffers.

One can see from the analysis above that, while Under Armour still has a long way to go, it is headed in the right direction. With strategic investments in the right areas and increased international reach, we expect the company to see better financials sooner than later.


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