Has Under Armour Already Captured All Its 'Low-Hanging Fruit'?

“With 2017 revenue forecast to decelerate sharply, we believe Under Armour Inc UA UAA has captured most of the ‘low-hanging fruit’ already,” Deutsche Bank’s Paul Trussell said in a note, while maintaining a Hold rating on the company.

The analyst lowered the price target for Under Armour from $19 to $17.

Near-Term Concerns

Trussell believes that for the company to drive revenue growth in future, it would need to make heavy investments in its footwear, DTC and international businesses, since these are key to Under Armour’s growth story and “therefore cannot be abandoned.”

“Moreover, with the core North American apparel business slowing and initiatives to re-accelerate growth likely taking time to take hold, we believe these growth drivers have become more important than ever,” the analyst stated.

Trussell noted that Under Armour needs to realign its assortment, with customers increasingly demanding athletic products with “lifestyle attributes” rather than performance attributes.

Growing Lifestyle Offerings

Although management has been working on growing the lifestyle offering, the analyst believes that the process would take time.

In addition, while the 2017 guidance indicates revenue growth of 11–12 percent, operating income is expected to decline 23 percent due to SG&A pressures, and Trussell believes management will be unable to cut core spending in line with the slowdown in revenue.

On the other hand, the analyst pointed out that Under Armour’s “successful performance apparel franchises and its popular fleece offerings offer a foundation for the company to grow its lifestyle assortment,” while adding that within footwear, the company could also “expand upon its Curry and SpeedForm platforms.”

The FY 2018 EPS estimate has been lowered from $0.50 to $0.47, reflecting a cautious stance on whether the company would be able to re-accelerate apparel growth and continue driving significant footwear growth.

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