FBR Capital Gets Bearish on Under Armour Inc (UAA) and Slices Price Target

The sportswear and footwear maker Under Armour Inc (NYSE:UAA) displays several disappointing elements as war towards price leadership with industry giant Nike has begun and foremost, tremendous pressure on sales does not seem to cease. As such, FBR Capital analyst Susan Anderson downgraded UAA shares from Market Perform to Underperform with a target price of $14.00 (from $20.00), given “recent checks, proprietary surveys, unfavorable trends, and our apparel/footwear analysis pointing to continued sales/margin pressure”.

“Our checks show a price war is intensifying between NKE and UA after UA’s entrance into KSS, which is causing NKE to defend its turf. This, coupled with the NA athletic apparel inventory glut, could cause UA apparel growth/margins to be worse than expected. Also, a lack of UA footwear innovation, increased competitor innovation (NKE VaporMax), and our footwear survey showing UA is losing consumer resonance could mean lower 2017 footwear growth”, explains the analyst.

Under Armour is constantly trying to lower prices with promotions to attract more customers, but Nike retorts with the same strategy. When the company entered Kohl’s department stores earlier this year, this price marathon was magnified, as they implemented a 25% discount, causing Nike to reduce prices across various item categories.

Moreover, Anderson’s survey contends UA needs to innovate for its footwear array is “declining in consumer preferences” and the industry sharks are constantly launching new products, which is also making it difficult to raise prices. “UA is raising prices on shoes TY (running shoes over $100 go from eight in 2016 to 14 in 2017) yet our consumer survey shows consumers are less willing to pay higher prices for UA footwear vs. LY (36% price sensitive vs. 34% LY, 84% want shoes <$100 vs. 82% LY). […] Finally, NKE and competitors have ramped up innovation over the past year (i.e., VaporMax), while UA innovation is lacking, which we believe is causing UA to lose shelf space (DKS in kids’ as Adi/Reebok ramp, less footwear space in FINL),” surmises the analyst.

According to TipRanks, a financial engine that measures and ranks analysts’ and bloggers’ performance, two-star analyst Susan Anderson is ranked #2322 out of #4557 analysts. Anderson has a 52% success rate and generates an annual yield of 0.8%.

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