Under Armour's Lowered Guidance Is 'Appropriate'

Under Armour Inc UA has revised its FY16 outlook to reflect the impact of The Sports Authority’s [TSA] bankruptcy and liquidation. Credit Suisse’s Christian Buss reiterated a Neutral rating for Under Armour, while reducing the price target from $38 to $35. The analyst commented that the guidance reduction seems appropriate, given that TSA was among Under Armour's largest customers.

TSA has decided to file for bankruptcy and liquidate its business rather than restructuring or selling the company. The liquidation of TSA creates a revenue gap of $120M for Under Armour, analyst Christian Buss said.

FY16 Guidance Reduced

In 1Q16, Under Armour had raised its 2016 revenue guidance to ~$5B, reflecting 26 percent y/y growth. The company had also guided to operating income of $503-$507M, implying 23-24 percent. In light of TSA’s liquidation, Under Armour has reduced its revenue guidance to $4.925B, reflecting 24 percent y/y growth, and lowered its operating income guidance to $440-$445M.

Buss said, “Ultimately, this admittedly one-time event highlights that even Under Armour is not impervious to the challenges occurring within the sporting goods retail space. We also believe this reflects the challenges managing a more aggressive top-line growth target, one of our longer-term concerns for the company.”

The EPS estimates for 2016, 2017 and 2018 have been reduced from $0.65 to $0.60, from $0.78 to $0.73 and from $0.97 to $0.90, respectively.