Under Armour Inc. is scheduled to report second-quarter earnings on Wednesday before the opening bell, and analysts will be looking for signs that the athletic company’s oversupply of merchandise isn’t hurting the brand.
“Excess carry-over inventory, fallout from poor product distribution decisions, and developing brand image degradation all point to trouble ahead,” said Susquehanna Financial Group analysts led by Sam Poser. “The company is not fundamentally positioned for the rebound that its current stock implies.
Under Armour UAA, -2.22% UA, -0.84% shares have rallied 35% over the last three months.
This isn’t the first time that the relevance of the Under Armour brand or the company’s inventory levels have caused analyst unease. Those worries haven’t been quelled heading into Wednesday.
“Our concerns revolve primarily around how Under Armour can get through over 23 forward weeks of supply of inventory without harming the brand’s image,” Susquehanna said, forecasting that the company will cut its guidance.
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Under Armour expects full-year 2018 revenue to be up at a low single-digit percentage rate, with a mid-single-digit decline in North America but more than 25% growth internationally.
“We expect that both product improvement at Nike NKE, +0.01% and increasing promotional activity from Adidas ADS, +0.21% put further pressure on Under Armour sales,” Poser and his team said. “Further, Under Armour’s decision to focus on athletic performance product instead of athletic lifestyle product narrows its addressable market.”
Susquehanna rates Under Armour shares negative with a price target of $11.
Thirty-four FactSet analysts have an average hold rating on Under Armour stock, and an average price target of $17.45.
Here’s what to expect:
Earnings: FactSet is guidance for an 8-cents-per-share loss, after a 3-cents-per-share loss last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, are guiding for loss per share of 5 cents.
Under Armour met break-even earnings expectations last quarter, and exceeded expectations the three quarters before that.
Revenue: FactSet expects revenue of $1.15 billion, up from $1.09 billion last year.
Estimize is guiding for revenue of $1.16 billion.
Under Armour beat revenue expectations the last two quarters.
Stock price: Under Armour shares have rallied 50.2% for the year so far, while the S&P 500 index SPX, -0.09% is up 4.7% for the period.
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-While Susquehanna checks indicate that Under Armour customers Dick’s Sporting Goods Inc. DKS, -0.93% and Hibbitt Sports Inc. HIBB, -2.04% are planning sales declines, Cowen checks indicate otherwise.
“Our checks and conversations with consultants suggest improved trends while Dick’s Sporting Goods and Kohl’s Corp. KSS, -1.05% also implied improvement,” analysts led by John Kernan wrote. “Our survey shows improvement in brand perception within apparel.”
Still, there are hurdles for investors.
“Wholesale exposure in the U.S. and promotional cadence renders understanding Under Armour’s recovery time challenging,” wrote Cowen analysts.
Cowen rates Under Armour shares market perform with an $18 price target.
-Stifel analysts note key developments since the first quarter including a revamp of the organizational structure and the launch of the Misty Copeland Signature Collection.
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“We see value in the Under Armour brand,” Stifel wrote. “With evidence of improving sales quality and cost structure management, we expect the stock begins to anticipate structural capacity for margin improvement before it shows in reported results and shares outperform.”
Stifel rates Under Armour shares buy with a $27 price target.
-Instinet analysts highlight the 30-minute sellout of The Rock’s Project Rock 1 shoes in a July 4 weekend note, published days after the shoes were restocked.
“In addition to restocking the shoes this time, Under Armour and The Rock released a pair of wireless headphones that have also sold out (with a restock date of September 20),” analysts led by Simeon Siegel wrote.
“We believe that the limited availability and subsequent restockings are part of the company’s plan for managing the franchise to generate buzz and promote a ‘call to action’; this represents a positive for brand equity.”