Under Armour Shares Tumble as Key Growth Drivers Show Signs of Weakness

TL;DR

Morgan Stanley released a bearish report on Under Armour, leading to a 40% reduction in price target and concerns about the company's growth and average selling prices.

Transcript

Sean O’Reilly: Dylan and I chatted about Under Armour on the tech show last Friday, but it was mostly in a positive light because of their showing at CES and their rollouts of, you know, Fibit competitors and all that stuff. But unfortunately you and I have to chat about Under Armour in more of a negative light, because of recent events. So, what h... Read More

Key Insights

• 🙅 Under Armour's positive momentum following their successful showing at CES was halted by a bearish report from Morgan Stanley.
• 🧔‍♀️ Concerns about the stagnating growth of Under Armour's women's apparel division pose challenges to the company's overall growth trajectory.
• ✋ Falling average selling prices for Under Armour's footwear indicate potential difficulties in maintaining their high performance, premium brand image.
• 🧔‍♀️ The report highlights the importance of women's apparel and footwear for Under Armour's growth potential.
• 🧔‍♀️ Under Armour has made significant investments in marketing campaigns to promote their women's apparel division.
• ✋ The company's valuation, with a high P/E ratio, raises concerns about its sustainability.
• 🤨 Morgan Stanley's report raises questions about Under Armour's ability to sustain its expected growth rate of 20-25% annually over the next five years.

Questions & Answers

Q: What caused Under Armour's negative outlook?

Under Armour's negative outlook was largely driven by a bearish report from Morgan Stanley, which cited concerns about the stagnating growth of their women's apparel division and falling average selling prices for their footwear.

Q: How has Under Armour been investing in their women's apparel division?

Under Armour has dedicated significant resources to develop their women's apparel division, spending around $15 million on marketing campaigns featuring famous athletes such as Misty Copeland and Giselle Bundchen.

Q: Why is the stagnating growth of the women's apparel division a concern?

The women's apparel division is a crucial pillar of growth for Under Armour, and the report indicates that growth has declined from double digits to a flat performance in the last six months of 2015. This division currently makes up about a third of the company's total business.

Q: What is the impact of falling average selling prices for Under Armour's footwear?

Falling average selling prices for Under Armour's footwear, particularly their running shoes, raise concerns about the company's brand image of offering high performance at a premium. Investors worry that competing on price could lead to compressing margins and a decline in growth rates.

Summary & Key Takeaways

• Under Armour generated buzz at CES with their fitness suite of products, but their positive momentum was halted by a bearish report from Morgan Stanley.

• The report highlights concerns about the stagnating growth of Under Armour's women's apparel division, which makes up a third of their total business.

• Another issue raised is the falling average selling prices for their footwear, causing worries about the company's high performance, premium brand image.