Under Armour Shoes Stink; Analyst Rates Stock Underperform On Growth Concerns

Under Armour Inc UAA weak footwear push has moved the company in “growth purgatory” according to a new industry wide report from Bernstein.

The Baltimore based athletic apparel brand grew aggressively into new categories, diversifying itself from a men’s apparel performance brand into women’s, footwear, international, sportswear and direct to consumer.

Although footwear has been one of the biggest brand initiatives over the last decade, despite possessing some of the most marketable athletes in sports, Under Armour’s footwear segment still remains a sub $1 billion business.

Why The Stinky Shoe Figures?

“Sales in the category declined for Under Armour in Q2, the first time that this has happened since 2010, as reviews by running experts continue to rank Under Armour lower than major competition in quality and as some product launches (e.g. the Curry 3) have, by the company's own admission, disappointed,” said Merriman.

Under Armour’s push to get into the Women’s market has been a key focus for the company for some time.Women's represents just 20 percent of total sales and 30 percent of apparel sales. The company has stated that it hopes to get its women’s line to become 50 percent of its apparel sales, but women’s athletic apparel only represents 32 percent of the athletic apparel market.

So far, women’s focused brands have had an easier time in growing their men’s segment than vice versa.

While Nike has placed a greater emphasis on DTC and is moving away from wholesale by destocking many of its products, Under Armour has been trying to grow wholesale alongside its DTC initiatives, which could create a conflict of interest over the long term.

Related Link: Breaking Down The Footwear Sector: Adidas Pipeline Still Strong, Under Armour Under Pressure

International, Sportswear Both Positives

Dicks Sporting Goods Inc DKS has already expressed its frustration with Under Armour’s partnership with Kohl’s, claiming that the brand has expanded to new distribution partners without growing market share. In turn, this created more competition for Dicks, which then may have to enter a pricing war with Kohl’s Corporation KSS on Under Armour products, potentially damaging the brands value.

International remains an interesting growth opportunity for Under Armour, where it currently makes up 16 percent of sales and is expanding further into new regions, however, International expansion is not expected to offset the slowdown in the US, according to Merriman.

Lastly, wportswear has also been a growing segment of the athletic apparel industry, an area that Under Armour has invested heavily in but lacks the industry knowledge in this highly competitive space.

Merriman does not believe Under Armour will be able to get back to 20-percent growth figures, the company had sustained for 26 quarters.

The firm has set an Underperform rating on the company with a $14 price target.