Citi Still Buying Under Armour, But Cuts Price Target To $50

Under Armour Inc UA has updated its FY16 guidance, taking into account The Sports Authority’s [TSA] decision to close all stores and liquidate as part of its bankruptcy proceedings. Citi’s Kate McShane reiterated a Buy rating for Under Armour, while reducing the price target from $56 to $50.

Under Armour had been expecting TSA to restructure and continue sales in remaining store locations through 2016. Following TSA’s decision to close all stores, Under Armour reduced its revenue guidance for FY16 to $4.925B, bringing down the revenue growth forecast from 26 percent to 24 percent. Operating income guidance has been cut to ~$440-$445M, taking the growth forecast down from 23-24 percent to 8-9 percent.

Analyst Kate McShane said that Under Armour’s 2Q16 operating income is now estimated at $17-$19M, after incorporating a onetime impairment charge of ~$23M.

Continued Brand Momentum

CEO Kevin Plank mentioned that that Under Armour’s brand momentum continued to be strong, despite the recent hit, with increased demand across all categories and geographies. McShane added that recent checks had indicated that the company’s inventories had remained relatively clean in the wholesale channel, with new product additions and low promotional activity.

Reduced Estimates

The EPS estimates for FY16, FY17 and FY18 have been reduced from $0.68 to $0.58, from $0.90 to $0.78 and from $1.16 to $1.01, respectively.