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Under Armour Inc.’s goal to increase sales of full-price items have been hindered by COVID-19, adding to the turnaround challenges that the athletic-apparel company faces, analysts say.
Under Armour UA, -4.00% UAA, -4.21% previously announced a 2020 strategy designed to grow its challenged North American business. One goal of the strategy was to reduce the amount of merchandise sold at a discount and through off-price channels.
The company has also shifted its store strategy, pulling the plug on a planned New York City flagship.
Just like all retailers, Under Armour is now facing the additional hurdle of managing through the coronavirus pandemic, which has closed stores and suppressed sales of apparel and shoes.
See:April will be ‘hideous’ for retail as stores remain shuttered and shoppers stay home, analyst says
“The COVID-19 crisis has exacerbated the existing problems facing the Under Armour brand,” wrote Susquehanna Financial Group analysts led by Sam Poser.
“Under Armour does not have the brand consideration or compelling product assortment necessary to reaccelerate sales post the current crisis. Elevated inventory levels should pressure gross margin for the balance of the year and stymie Under Armour’s ability to introduce new product.”
Susquehanna also said better-positioned competitors like Nike Inc. NKE, -2.93% will take market share from Under Armour.
Susquehanna rates Under Armour stock negative and cut its price target to $4 from $6.
The apparel category had a tough April, with online prices dropping 12% for the month, according to the latest data by the Adobe Digital Economy Index. That’s the steepest April decline in five years.
“Apparel [experienced] discounting in April that is akin to the scale of discounting that certain categories experience during the Black Friday through Cyber Monday holiday sales period,” said John Copeland, vice president of marketing and customer insights at Adobe ADBE, -1.70% .
The road ahead for Under Armour’s restructuring has been made bumpier by the coronavirus.
Read:Neiman Marcus and J.Crew could survive bankruptcy filings, experts say
“In our view, the pandemic amplifies certain challenges that can impact the brand for the medium- to long-term, including being able to drive full-price sales,” wrote Wedbush analysts led by Christopher Svezia.
“In the end, Under Armour came into FY20 with weak positioning (including pre-coronavirus) and the pandemic appears likely to extend brand challenges and limit recovery versus peers.”
Wedbush rates Under Armour stock neutral with a $10 price target, down from $11.
Under Armour reported wider-than-expected losses and a revenue decline during the first quarter. Stifel analysts said the company might have to get used to lower numbers.
“Under Armour will need a path to profitability improvement on a lower revenue base and additional expense reduction,” analysts led by Jim Duffy wrote.
“Revenue pressure will likely drive a net income loss in 2020, and channel partner bankruptcy risk could further delay a return to profitable growth. To turn constructive again beyond the COVID-19 disruptions, we are looking for stabilization in the channel landscape, visibility to normalization of inventories in the category and tangible evidence of consumer appetite for new styles.”
Stifel rates Under Armour stock hold and also cut its price target by $1 to $10.
Not all analysts are as downbeat.
“Despite these near-term pressures, we believe management has positioned the company with enough liquidity to endure fairly draconian scenarios, including ongoing starts and stops of stay-at-home measures in the future,” wrote Raymond James analysts led by Matthew McClintock.
Under Armour ended the quarter with $959 million in cash and equivalents.
“[W]e believe the company is well positioned to profitably participate in any recovery scenario, particularly one in the highly attractive health and fitness sector.”
Raymond James rates Under Armour stock strong buy, but slashed its price target to $12 from $25.
Under Armour shares have lost more than 60% of their value over the past year while the S&P 500 index SPX, -2.05% is down 0.4% for the period.
