Like most retailers, Under Armour (NYSE: UAA) has been struggling to deal with the COVID-19 pandemic, seeing its shares plummet to a nine-year low following an abysmal first-quarter earnings call. The company also experienced a loss in sales because of store closures, which dropped 23% in Q1. But the outlook for the company was grim even before the pandemic struck, its stock depreciating by more than 80% since 2015.
Can Under Armour bounce back?
Experts believe things will get even worse in the second quarter, with a drop of 60% in sales. This time last year the company was posting a profit of $22.5 million, while it now faces a net loss of $589.7 million. Safe to say that it has gone down fast, but it isn’t impossible for the business to get back on track.
The company has plans to revive its business by restructuring its costs, such as saying goodbye to retail employees and cutting on marketing costs. Under Armour also needs to turn its focus to its e-commerce platform, as online spending is up more than 30% in the U.S. since the beginning of March to mid-April compared to the same time last year. While Under Armour’s online platform is showing signs of growth, it only makes up for a low double-digit percentage of its global revenue.
As the global economy starts to gradually reopen and a vaccine for the coronavirus gets closer, consumers will be able to return to shopping in-store. Once this happens, it’s hoped that spending will increase and its growth trends will rebound. However, Under Armour was already struggling to get consumers to purchase its products before the virus unleashed, so it will have to work extremely hard to turn this around. The performance wear company did end the quarter with $959 million in cash and equivalents, so it is in a position to recover with time.
Will the competition be too much?
Over the years many have questioned why Under Armour didn’t get involved in the athleisure movement like some of its big competitors. In the U.S. the company has been struggling to gain momentum, going up against Nike (NYSE: NKE) and Lululemon (NASDAQ: LULU).
Nike has a huge global reach and is the world leader in footwear. The brand has also been hampered by store closures, but its revenue rose by 5% year-over-year and digital sales grew by 30% in the third quarter of 2020. As for luxury yoga apparel brand Lululemon, it is also suffering from store closures as about 29% of its sales rely on in-store purchases. Analysts predict that Lululemons revenue will rise just 1.9% in fiscal 2020, compared to Under Armour’s estimated drop of 13.6%.
Should investors give up on Under Armour?
We need to remind ourselves that the closures of stores will be temporary and some economies have already started to reopen. But the bad news for Under Armour is that it does seem to be taking longer than expected in the U.S, which accounts for around 65% of its total quarterly sales, as they grapple with a huge number of coronavirus infections.
It could be some time before the company bounces back to its full capacity and in-store sales begin to normalize. Although, there is nothing to show that even once this does happen, the business will be able to improve. There has also been a high turnover in management in the past few years, and its listless plans will likely struggle up against its competition. If the company is able to get through the coronavirus pandemic, it will likely take many years before Under Armour is a go-to provider for performance wear.
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Contributing Writer at MyWallSt
Alsha is a contributing writer to MyWallSt. Alsha’s favorite stock is Shopify because not only does she enjoy a bit of online shopping, but she believes the e-commerce solutions business is going to continue making big gains.