OTHER Influencing Factors for UNDER ARMOUR Earnings
Morgan Stanley Upgrade.....
Stanley upgraded its rating for Under Armour stock and lifted its price target
from $23 per share to $24 per share.
Inc. got a boost on Wednesday after one of the biggest banks on Wall Street
said it sees an opportunity for the sportswear maker to outperform its
Under Armour shares rose 2.7% to $19.59 on Wednesday following the report.
Greenberger, an analyst at Morgan Stanley who authored the research note, wrote
that Under Armour's current valuation "has
compressed and appears compelling." She also wrote that Under Armour
has a "compelling setup" in
2022 because it has lower supply chain risk than its peers, a high chance of
outperforming in China, positive feedback from retailers and will likely issue
conservative guidance for the year.
"In our view, current trading levels suggest the
market may have unfairly-penalized Under Armour's stock for holiday weakness in
specialty retail without considering its differentiated model and product
and apparel companies experienced supply chain challenges suffered by many
industries across the world last year due to the Covid-19 pandemic. Greenberger
said Under Armour benefits from lower risk compared to its peers because a
relatively higher percentage of its sales come from apparel instead of
footwear. Under Amour also has a more geographically diversified manufacturing
footprint, she wrote.
comprises about 65% of Under Armour's revenue, compared to a range of 30-40% at
peers who rely more on footwear.
"This is an advantage because
the apparel industry is on track to benefit from normalized inventory levels
more quickly than footwear, as apparel producers have lower labor needs and
more dormitory capacity for factory workers, and thus can resume production
faster following any stoppages," Greenberger wrote.
reason for Morgan Stanley's bullishness is due to the regular checks that it
does with retailers to see how brands are performing. Greenberger said the
feedback from U.S. and European retailers about Under Armour "was markedly
positive compared to prior checks."
"This gives us confidence that
Under Armour's North America turnaround is working and international perception
is improving, which could support higher revenue growth compared to pre-Covid
announces completion of a periodic review of ratings of Under Armour, Inc.
Under Armour, Inc.'s Ba2 corporate family
rating reflects its track record of debt reduction and maintaining moderate
financial leverage, along with its well-known brand and solid competitive
position in branded performance apparel, footwear and accessories in the U.S.
and internationally. The rating is constrained by its reliance on a single
brand and limited geographic reach, which exposes the company to economic
cyclicality and inherent changes in consumer preferences in a concentrated
region. While operating margins have significantly improved over the past year,
they remain weak relative to other similarly rated apparel peers, and it will
take additional time to prove that turnaround efforts will have a sustained
China Exposure .....
sourcing standpoint, about 50% of Under Armour's product comes from the Asia
Pacific, about 25% from the Middle East and Europe, and another 25% from Latin
major brands last year experienced challenges in China after they expressed
concerns related to accusations of forced labor in the Xinjiang territory.
Nike, H&M, Burberry and Calvin Klein were among those who promised to stop
buying cotton from sources in Xinjiang.
government refuted the accusations and urged citizens to boycott the brands. There
have been ongoing questions about whether the growth of sportswear brands in
China is permanently impaired. Under Armour could be more insulated from the
risk than other brands because it has lower revenue exposure to the region and
did not release a statement regarding its stance on sourcing from the Xinjiang
Restructuring Program .....
had implemented a restructuring program. The company put the program in place
in April 2020. Under Armour announced that it would spend $550 million to $600
million to reduce its costs and improve cash flow. Most of the restructuring
plan took place last year. Under Armour stock looks to benefit from the program
in the future.
combined with recovery from the COVID pandemic has improved Under Armour’s cash
flow. The company has increased earnings over the last twelve months.
Executives used the additional cash flow to pay down debt and decrease interest
payments significantly over the past few quarters. These moves could be a
positive sign of things to come for the stock.
states that the restructuring costs should be completed by the first quarter in
2022. That reduction in cost alone should begin to show great benefit for the
Other Influencing Factors.....
last several years, the athletic clothing market has added fuel to Under
Armour’s sales growth. First, workers took advantage of dress codes that have
relaxed over several years. After that, COVID-19 forced many employees to work
from home. And comfortable athletic clothing became the new status quo. Analysts
project that the global athletic apparel market will grow to over $221 billion
In the past,
Under Armour mostly sold athletic shoes like basketball, baseball, football,
soccer, and running shoes. The growing popularity of sports worldwide has
provided growth for the entire athletic shoe industry.
2020, Under Armour launched the Curry Brand with long-time brand partner Steph
Curry. That was a key step to rival Nike’s Air Jordan franchise. Furthermore,
the company has increased sales every year for the last ten years, except 2020.
Armour's specialty fabrics are manufactured by a relatively small number of
contracted sources that are in several different countries. The assembly of
products is diversified among 50 primary manufacturers located in 18 countries
with 10 manufacturers producing 57% of apparel and accessories in FY 20.
the company has recognized a benefit in not depending too much on any one manufacturer
or even one country for sourcing.
is finding that in the current environment they can utilize pricing power,
which may be a term that was not considered too much in this industry
pre-pandemic. With less inventories and high consumer demand they can ask and
receive higher prices for the available product.
they are finding similar abilities to charge more to third party off-price
channels. With decreased inventories available at full prices, they are finding
that off-price dealers are willing to pay more just to get the products. All
this helps Under Armour's gross margins, and they believe the condition will
exists for some time.