Piper Jaffray 'Cautious' On Under Armour, Says This Is Number To Watch

• Under Armour Inc UA shares have been on a downward trajectory for three months, and have lost 28 percent since October 27.
• Piper Jaffray’s Erinn E. Murphy maintained a Neutral rating for the company, while reducing the price target from $88 to $64.
• While pointing out near term concerns, Murphy keeps the estimates below Street expectations.

Analyst Erinn Murphy expressed concern regarding Under Armour’s near-term performance, citing footwear inventory in the channel, challenges with a key retail partner - Sports Authority - and the ongoing impact of a significantly warmer winter season.

Under Armour’s shares have declined 36 percent since their recent high. Murphy pointed out, however, that the market environment was not one in which high multiple companies would be “finding their footing on less-than-pristine reports.”

The analyst projected Q4 EPS of $0.44, versus Street expectation of $0.46. The sales estimate, at $1,109M, is also below the Street expectation of $1,127M. Piper Jaffray expects the company’s gross margin to contract 130 bps y/y, as compared to an 80 bps y/y decline in Q3.

The Street is already expecting a gross margin miss as well as soft apparel growth. However, the company’s inventory versus sales growth gap could likely widen from Q3, the analyst said, while adding, “We'd expect mgmt to reiterate (not raise) its FY16 guidance (25% sales; 23% EBIT growth) but see risk to the Street's Q1 and FY16 EPS.”