Is Under Armour headed in the direction of Nike?
Nike was once viewed as an unstoppable force in the athletic apparel business. But the most recent quarter indicated signs that growth is slowing down.
Under Armour, like Nike, has received lots of praise over the past few years because of its rapid growth and aggressive expansion plans.
But there are some signs that show that just like its big brother Nike, Under Armour may not be invincible to the overarching problems in the apparel market.
Here are two issues UBS analysts highlighted in a recent report.
1. It’s been a bad quarter for sportswear as a whole
A recent note from UBS highlights that the second quarter of fiscal 2016 has been “among the toughest quarters ever for US athletic retailing,” pointing to excess inventory following the 2015 holiday season and Sports Authority filing for bankruptcy earlier this year.
UBS points to how in Nike’s most recent earnings report at the end of June, the company reported that it had lots of inventory and that it would take longer than it initially anticipated to rid itself of apparel.
“As we go into the next quarter we expect clearly to remain in excess inventory through our factory stores and also through select third party value channels,” Nike president Trevor Edwards said on a recent earnings call.
This inventory problem stretches further than Nike. Separately, Lululemon has also dealth with excess inventory.
2. The company isn’t acting fast enough to invigorate trends
Women’s and youth apparel, two key categories for Under Armour, have experienced sluggish sales.
In the spring, Morgan Stanley noted that its women’s apparel was declining.
The company has announced that it will be expanding into a new category with its more upscale Under Armour Sportswear, which is supposed to be preppier and more fashion-oriented. It will also be pricier, with a pair of jogging pants retailing for $395.
This expansion could be important since one problem facing is Nike is that basketball has been losing its strength, and basketball is a crucial trend for sportswear brands. Another note from UBS pointed to how investors are concerned that basketball trends are slowing down.
Separately, UBS believes that Under Armour will start selling apparel at Kohl’s in the second half of the year, which should help to “minimise revenue disruption,” as the analysts write. While this could help the company with sales, Kohl’s customers are likely not as trend-oriented as more upscale shoppers are.
Earlier this month, Morgan Stanley analyst Jay Sole told The Street that if the company were to sell apparel at Kohl’s, it would be potentially earn the company about $190 million.
Under Armour reports earnings for the second quarter of fiscal 2016 on Tuesday, July 26.
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