Under Armour: The Comeback No One's Talking About

Under Armour Inc UAA shares have quietly staged a comeback this year after ending 2017 as the third-worst performer in the S&P 500.

The Baltimore-based apparel brand's shares have roared back over 44 percent year-to-date, but the sentiment still appears to reflect the brand's lack of identity or presence in a sportswear-dominant cycle.

Wedbush: Risks Remain

Under Armour finally reported good news Thursday with a second-quarter earnings beat, but the company issued weak 2018 earnings guidance.

Wedbush analyst Christopher Svezia called it a "low-quality sales beat" driven by the off-price channel rather than brand momentum in a Friday note. 

“Brand challenges and risks to the outlook remain, including uncertainty around a real inflection in North America, distribution and product acceptance, including at full prices after reliance on the off-price channel,” the analyst said. 

Under Armour is not without significant North American competition, with Nike Inc NKE staging a comeback, Reebok seeing momentum, and Champion, Fila, adidas AG (ADR) ADDYY, Puma AG Rudolf Dassler Sport PMMAF, New Balance, and VF Corp VFC’s Vans gaining share, Svezia said. 

A lack of visibility will likely remain until Under Armour's investor day in December, according to Wedbush. The firm remais Neutral on the stock with an $18 price target. 

Credit Suisse Stays Neutral, Sees Signs Of Progress

Credit Suisse analyst Michael Binetti also maintained a Neutral rating on Under Armour with a price target lifted from $21 to $23.

One bright spot was a 15-percent year-over-year acceleration of growth in footwear revenue in Q2, up from just 1 percent in Q1, the analyst said.

Under Armour seems optimistic on the Curry and HOVR footwear lines, Binetti said.

The apparel company has made substantial progress with its inventory problem, with inventories up 11 percent in Q2 — down from 27 percent in the first quarter, the analyst said. Credit Suisse expects Under Armour to end 2018 with inventory in the low single digits. 

“With sales generally stabilizing, costs under control and inventory improving, from here we think UAA needs to create buy-in for a solid pace of GM recovery for EPS to move higher,” Binetti said. 

Price Action

Under Armour shares were down 6.58 percent at $20.60 at the close Friday.

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Photo courtesy of Under Armour.