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Short of the Week: Under Armour Inc


The vultures are circling Under Armour (NYSE: UAA), which reported its first ever operating loss for Q1 2017. Analysts have been critical of the sportswear firm, which they claim missed the transition of sports apparel from something you run around and sweat in, to something you wear as a fashion accessory. Mind you, I’m old enough to remember the Adidas green flash trainer being quite the item.

Footwear and clothing that would actually be classified as a fashion accessory comprise less than 5% of the company’s total inventory, according to analysts who argue that Under Armour has missed the boat on this one. These days we call it ‘athleisure’, and Under Armour executives themselves acknowledge that they are behind the curve. Analysts are crueller, however, arguing that it will take years for the company to catch up.

“We need to become more fashion,” CEO Kevin Plank told analysts in a call this week. “The consumer wants it all. They want a product that looks great, that you can wear at night with a pair of jeans, but that also does perform for them.”

Under Armour partnered with fashion designer Tim Coppens last year to launch a belated line of athleisure but this has not made the impact in the market that they hoped. Nor is it being particularly clear which part of the market this new look is being aimed at – high end buyers who will shell out $1500 for a coat, or the more mass market? Analysts are confused, which means consumers will be too.

Looking at the share price, the market was happy with a price of around the $30 mark up until the poor results came out. This was obviously a bucket of cold water in the face for many investors, who left in droves, sending the price down to around $19-20. It has tended to stay in that range, occasionally peeping above $21, but the market has obviously fallen out of love here.

The question for the bear trader is whether we are going to see more bad news with the next set of results. If you want to short Under Armour, you will be looking for signs that management is going to have to cough up further poor numbers, forcing many more investors to shed stock and look elsewhere.

Bear in mind that there is no shortage of solid-looking athleisure companies in the market, if it is exposure to this trend that you want.

Under Armour directors seem to be busy selling too. Much of this is regular sales or tax related sales, but nobody is buying. Look at the six month picture, and none of the directors want to buy shares in their own company. Plank himself off-loaded over 60,000 shares on February 15 in a tax-related transaction.

Analysts are becoming more negative about Under Armour: out of 33 polled by the Financial Times, five rate the stock as an underperform, while one is a sell. Nineteen still rate it a hold. However, 12 months ago only one of these analysts was in negative territory. Plank’s decision to come out in support of President Donald Trump’s business policies has also struck the wrong chord with analysts, who feel business leaders should avoid making overt political pronouncements of this kind.

“Regardless of CEO Plank’s political views or whether his comment was meant to be a Trump endorsement or general opinion, we believe the decision to express a view in today’s highly charged political climate was a mistake,” says Sam Poser, an analyst with Susquehanna. “In this case, perception is reality.”

Other big bears for Under Armour include Susan Anderson at FBR Capital, who is calling Under Armour at $14. Anderson said she expects that the company would report earnings well below Wall Street expectations this year.

However, there are also bulls out there who see the price going back up to $25, like Jonathan Komp at Robert W. Baird. The hedge funds sector seems a little divided on the stock: Joel Greenblatt of Gotham Asset Management has been a recent buyer, while Frank Sands of Sands Capital Management has been a seller.

We expect Under Armour’s next set of results to look as bleak as the last lot and prompt more selling. Investors in this segment have many other companies to back, like Adidas for crying out loud (remember my green flash comment earlier)? It has a solid balance sheet and a rich portfolio of brands, although it is a tad more expensive at $95.

Shorting Under Armour is best achieved with a CFD if you are living outside the United States or Canada: among those offering Under Armour CFDs are XTB and eToro. Options on Under Armour are available from a wide range of US options brokers.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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