As COVID-19 has impacted even the most financially sturdy companies, the problems have been even more acute for those already in trouble before the global crisis began. Case in point: Under Armour (UAA). As US Sales dropped by 2% in 2019, COVID-19 has further exposed the sportswear maker’s weak operating momentum.
Even the recent market wide rally has neglected to include the Baltimore based company. Year-to-date, UAA stock is still down by a merciless 58%.
A soft Q1 earnings report hasn’t helped matters, either.
In the first quarter, revenue of $930.24 million missed the estimates by $8.98 million and represented a year-over-year decline of 22.5%. Non-GAAP EPS of -$0.34 came under consensus estimates by $0.15. North American sales dropped by 28%. International sales fared better but were still down 12% from the same period last year.
Looking ahead, with $959 million in cash and cash equivalents, the company feels it has the required ammunition to weather the COVID-19 storm, but has warned investors that Q2 revenue could be down by 50% to 60%. The company plans to cut 2020 operating expenses by $325 million with lowering marketing expenses, furloughing employees, and reducing capex, among other cost containment measures.
For Guggneheim’s Robert Drbul, there is too much uncertainty in the cards when considering Under Armour as a viable investment. Drbul remains on the sidelines until there is a “sustainable improvement in the top/ bottom lines in a post-COVID environment.”
The analyst said, “Overall, while we continue to believe the Under Armour brand resonates with consumers, and we are encouraged by the actions being taken by management to improve business operations/enhance liquidity during the current disruption, we believe UA faces a difficult road ahead, particularly as it competes in an evolving retail environment vs. stronger companies/brands (e.g., Nike/Adidas), in our view.”
Accordingly, Drbul reiterated a Neutral rating, yet hasn’t specified a price target. (To watch Drbul’s track record, click here)
The Guggenheim analyst is not alone in his assessment. A Hold consensus rating is based on 8 Hold ratings and 1 Buy. However, following the sharp pullback, the average price target of $10.33 represents plentiful upside of 35%. (See Under Armour stock analysis on TipRanks)