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Under Armour May Soon Have To Decide Which Segments It Can Live Without

Elizabeth Balboa

Nike Inc (NYSE: NKE) once lived by the confident motto, “Anything you can do, I can do better.”

But Under Armour Inc (NYSE: UAA) is more pragmatic. The sports apparel company “can do anything but can’t do everything,” CEO Kevin Plank said at a recent investor conference.

Stifel Nicolaus expects this mantra to guide Under Armour’s restructuring process, driving it to quit a few distractions.

“We see some difficult decisions as foundational to stabilizing the North American apparel base and realization of value creation from international growth,” analysts Jim Duffy, Peter McGoldrick and Kevin Sercia wrote in a Tuesday note. “These decisions may include exiting businesses in an effort to emphasize quality over volume.”

By their assessment, the ski and snowboard, fishing, surf and fitness device segments may not fit the firm’s long-term strategy.

Any discontinued categories could amount to forfeited 2018 revenue between $100 million and $200 million, “which is a communication challenge for a company that has historically been graded on growth.” However, analysts expect muted earnings impact buffered by reallocation of personnel, marketing and facilities expenses to higher return products, such as footwear or women’s apparel.

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“We hope to see prioritization of resources and capital to global opportunities where the brand has a distinct point of view,” they wrote.

In the short term, the brand suffers risk in the North American market, which Stifel considers inhibitive to the mid-20-percent revenue growth guided for in the fourth quarter.

Stifel maintains a Hold on the company with an $18 price target. The stock was set to open Monday at $16.25.

Under Armour will report third-quarter earnings Oct. 31 before the open.

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Latest Ratings for UAA

Date Firm Action From To
Oct 2017 Canaccord Genuity Maintains Hold
Oct 2017 Pivotal Research Initiates Coverage On Hold
Sep 2017 KeyBanc Upgrades Sector Weight Overweight

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