Under Armour's Poor Guidance Goes Far Beyond Coronavirus

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Under Armour posted an unsatisfactory fourth quarter of 2019 and incredibly disappointing 2020 guidance, pinning the latter on the coronavirus.

But management also pinned the rough guidance on something a little more mundane: North America sales are just not turning around.

First off, here were the numbers:

Revenue came in at $1.44 billion, missing analyst estimates of $1.47 billion. Earnings per share met expectations at 10 cents. North America sales were $982 million, missing Wall Street estimates of $987 million.

Management guided for sales to fall in 2020 over 2019 by a losing-digit percentage, against analyst estimates of 4% sales growth to $5.512 billion. Operating income was guided for a midpoint of $115 million, badly missing analyst hopes of $299 million.

Management said “the company’s 2020 outlook currently includes an estimated negative impact of the coronavirus out break in China of approximately $50 million to $60 million in sales related to the first quarter.” But the $55 million midpoint of the sales impact represents 1% of analysts 2020 estimates (those estimates will come down, but that percent ill still remain low). China sales represent roughly 3.4% of total company sales.

Here was the bigger issue with the guidance:

The guide “reflects a mid to high single-digit percentage decline in North America as work continues to rebalance against the market demand and pro-active strategies to better protect the company’s premium brand positioning.” International revenue is growing, even accounting for the Coronavirus impact. It’s the North America business that new CEO Patrick Frisk has been tasked with correcting, among his other initiatives.

Under Armour has lost to Nike and other competitors and has failed to create a solid digital strategy. The company has a direct-to-consumer business in place, which is more efficient for customers and usually higher margin, but that has yet to bear fruit.

CFRA analyst Camilla Yanushevsky wrote in a note, "2020 guidance was abysmal, notably in North America, where UAA has largely missed out in the athleisure trend and continues to lose share to the likes of Nike and Lululemon."

And Under Armour bears tell Morgan Stanley analyst Kimberly Greenberger that “brand health is irreversibly damaged,” Greenberger said in a note.

The stock fell 16.23% Tuesday. 

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