Under Armour (UAA) stock is down nearly 23% so far this year, managing to underperform a falling Nasdaq.
Regardless of the crisis in Ukraine, the market is currently favoring other sectors and not the garment industry. So, I expect this downtrend in Under Armour shares to continue for the time being. Therefore, I am bearish on this stock.
Based in Baltimore, Maryland, Under Armor is a designer and marketer of branded athletic apparel, footwear, and accessories.
The company sells its products indirectly through various domestic and international channels and directly to consumers through 439 stores, including brand and factory houses. Customers can also purchase Under Armour merchandise from the company’s e-commerce websites.
Q4 Earnings
Despite the dynamic environment due to the impact of the Omicron variant and ongoing supply chain headwinds, Under Armour managed to post higher revenue of $1.53 billion in the fourth quarter of 2021 (up 9.3% year-over-year).
The growth was driven by good brand awareness and strong consumer demand, enabling the company to post earnings per share of $0.14. Revenue exceeded the median projection of analysts by $60 million, while earnings beat the median consensus estimate by $0.07.
In the fourth quarter of 2021, the gross income margin was 50.7% of net revenues, up 130 basis points from 49.4% in the same quarter last year.
Operating income increased 54.2% year-over-year to $86.1 million in the quarter. Adjusted operating income was $100 million compared to $107.8 million last year.
Looking Ahead
Looking ahead to the first quarter of 2022, Under Armour expects revenue to grow in the mid-single digits and its gross margin to be lower year-over-year.
In addition, operating income is expected to be no less than $30 million, while diluted EPS is expected to be $0.02 to $0.03.
The Near Future Will Not Be Favorable
The Federal Reserve’s rate hikes to counter record inflation are likely to affect household budgets, as higher borrowing costs will force a review of spending plans.
In such a context, consumers will be more focused on essential goods and services than before, unless they belong to the category of very wealthy people who can afford luxuries regardless of the cycle.
However, Under Armour merchandise doesn’t seem to fill essential needs, except in limited cases. Therefore, the sportswear stock shares will be caught in the middle and suffer the tailwinds of the negative cycle due to monetary tightening.
Wall Street’s Take
Turning to Wall Street, UAA stock comes in as a Moderate Buy. This is based on 14 Buys, seven Holds, and one Sell assigned in the past three months. The average Under Armour price target of $25.85 implies 58.8% upside potential.
Conclusion
Shares of Under Armour are likely to continue falling as the cycle is not benign, either now or after monetary tightening.
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