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Why Did Under Armour Shares Dip 23.9%?

Under Armour Inc (NYSE: UAA) shares lost almost one-fourth of its market capitalization after the company delivered worse-than-expected Q1 results, missing both earnings and revenue estimates.

Investors were further disappointed as the American sports equipment company that manufactures footwear, sports and casual apparel issued its FY2023 guidance well below analysts’ expectations.

Q1 Miss

The company reported an adjusted loss of $0.01 per share, which fell far short of analysts’ estimated earnings of $0.06 per share.

Meanwhile, revenues gained 3% year-over-year to $1.3 billion but lagged consensus estimates of $1.32 billion.

Furthermore, gross margin decreased 350 basis points year-over-year to 46.5% due to higher freight expenses.

Lowered FY2023 Outlook

Based on ongoing supply chain challenges, macro uncertainty, and inflationary trends, management issued weak financial guidance for FY2023.

The company forecasts adjusted earnings in the range of $0.63 to $0.68 per share, while the consensus estimate is pegged at $0.77 per share.

Revenues are forecast to grow 5% to 7% from the comparable baseline period of $5.7 billion, which implies a mid-single-digit growth rate in North America and a low-teens growth rate in the international business.

CEO’s Comments

Under Armour CEO, Patrik Frisk, said, “As global supply challenges and emergent COVID-19 impacts in China eventually normalize, we are confident that the strength of the Under Armour brand coupled with our powerful growth strategy positions us well to deliver sustainable, profitable returns to shareholders over the long-term.”

Wall Street’s Take

Following disappointing Q1 results, Morgan Stanley analyst Kimberly Greenberger decreased the price target on Under Armour to $14 (28.56%) from $23 and reiterated a Buy rating.

The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 15 Buys, six Holds and one Sell. At the time of writing, the average Under Armour stock forecast was $21.40, which implies 96.51% upside potential to current levels.

Take Away

Like many of its peers, Under Armour reported disappointing quarterly results. It also muted the yearly outlook due to global supply chain challenges and sudden drop in sales and demand due to Covid lockdowns in China. While these issues may be temporary, investors are concerned until they see some signs of recovery in demand and revenue outlook.

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