Consumer Products

Why Under Armour Stock Has a Rough Road Ahead

Under Armour Inc. (NYSE: UAA) reported first-quarter 2020 results before markets opened Monday morning. The sports gear maker reported an adjusted loss per share of $0.34 on revenues of $930 million. In the same period a year ago, the company reported EPS of $0.05 on revenues of $1.2 billion. First-quarter results also compare to consensus estimates for a loss of $0.18 per share and $958.2 million in revenues.

In late March, the company announced a restructuring plan that is expected to result in charges of $475 million to $525 million, including about $350 million in noncash charges. Within days, Under Armour announced that it would close its stores indefinitely and lay off about 6,700 employees. The company made the list of 21 U.S. firms laying off the most people.

Year over year, revenue fell 23% (22% in constant currency), with an estimated 15 points of the decline due to the COVID-19 pandemic. Gross margins improved by 110 basis points to 46.3%, while SG&A expenses rose by 8% to $553 million.

The company’s operating loss for the quarter totaled $558 million. Excluding restructuring costs and impairment charges, the adjusted operating loss was $122 million.

CEO Patrik Frisk said:

[O]ur balance sheet remains well managed, and our leadership team is taking decisive actions to execute against our continued transformation. We remain focused on driving greater efficiencies across the core elements of our business by working to identify additional opportunities to emerge with stronger and greater capabilities over the long-term.

North American sales dropped nearly 28% year over year, and Asia-Pacific sales fell by more than a third. The company has about $960 million in cash and equivalents, with long-term debt of $593.3 million.

Under Armour withdrew its outlook for 2020 in early April and did not offer further financial guidance. The consensus estimates for the second quarter call for a per-share loss of $0.24 and sales of $819.6 million. For the full year, analysts are looking for sales of $4.55 billion and a net loss of $0.11 per share.

If the company is going to lose $0.58 per share in the first half of the year, to reach the estimate means positive earnings of $0.47 per share in the second half of the year. That’s possible, but in 2019, Under Armour’s earnings per share for the full year totaled $0.34.

Shares traded down more than 9% early Monday to $9.01. The 52-week trading range is $7.39 to $27.72, and the 12-month price target is $12.00.