Goldman's 12-Month Target On Under Armour Falls From $49 To $45

After market close on May 31, Under Armour Inc (NYSE: UA) lowered its revenue and EBIT guidance for FY16, driven by the recent development associated with The Sports Authority’s (TSA) bankruptcy.

Goldman Sachs’ Lindsay Drucker Mann maintained a Neutral rating on Under Armor, while lowering the price target from $49 to $45.

Impact Of TSA

Mann mentioned that the bankruptcy has led to the liquidation of TSA’s business rather than a sale or restructuring, as had previously been expected by Under Armor’s management.

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Pointing out that the guidance “suggests $120mn of incremental lost sales from TSA,” the analyst estimates an impact of 10 percent, 45 percent and 45 percent in 2Q, 3Q and 4Q, respectively, of the total $120 million, along with impact on the North America business.

“We assume 1/3rd sales recapture as lost sales from TSA are picked up elsewhere, including major sporting goods retailers, UA outlets, and UA.com, per guidance. This implies a net $8mn/$36mn/$36mn reduction in sales expectations,” Mann stated.

Estimates Lowered

Mann also expects 40-50 percent contribution margin on lost sales, based on the revised guidance.

The FY16 revenue and EBIT estimates have been lowered to $4.97 billion and $468 billion, respectively.

The FY16 EPS estimate has been lowered from $0.67 to $0.60, while the FY17 and FY18 EPS estimates have also been revised.

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