Under Armour (NYSE:UAA), a leading name in the global sports industry, has experienced substantial strategic challenges. Five CEOs resigned within as many years, while the stock has decreased over 66% in the past three years. Now, with the founder once again taking the helm, the company confronts a challenging future – with expectations for decreased purchases in 2024, and predicting a low double-digit revenue drop in Fiscal year 2025.
The stock trades at a value compared to industry peers, reflecting the headwinds it faces. With no immediate turnaround in sight, long-term investors might want to hold off and wait for signs that management is having success returning the company to more substantial revenue and earnings growth.
Under Armour’s Change in Leadership
Under Armour develops, markets, and distributes performance apparel, footwear, and accessories for various fitness needs. The company serves multiple sports and activities, including running, training, basketball, and outdoor applications.
Sales have been under pressure for some time. A wave of earnings misses has prompted a revolving door in leadership. Most recently, Kevin Plank, the founder and former CEO who served from 1996 to 2019, has returned to reassume his role.
Under Armour’s Board of Directors has approved a restructuring plan to strengthen and support the company’s financial and operational efficiencies. In conjunction with this plan, the company expects to gain a total estimated pre-tax and related charges of $70 to $90 million.
Under Armour’s Recent Financial Results & Outlook
Under Armour recently published financial results for the fourth quarter of Fiscal year 2024. The company reported a 5% decrease in revenue to $1.3 billion, which fell short of expectations by $20 million. In its formal clothing sales, revenue has decreased by 1% to $877 million. However, supply chain benefits like cost optimizations increased the gross margin by 170 basis points to 45.0 percent. Non-GAAP EPS of $0.11 surpassed expectations by $0.03.
By the end of the quarter, the company had $859 million in cash and cash equivalents and no outstanding borrowings from its $1.1 billion revolving credit facility. The company also announced its Board of Directors has authorized the repurchase of $500 million of Under Armour’s outstanding Class C common stock over the next three years.
In addition, Management has issued guidance for Fiscal year 2025, indicating a low double-digit percentage revenue decrease. Operating income is expected to lie between $50 and $70 million, with capital expenditure projections between $200 and $220 million. Adjusted diluted earnings per share are expected to be between $0.18 and $0.21.
What Is the Price Target for UAA Stock?
Analysts following the company have taken a cautious stance on the stock. For example, Oppenheimer’s Brian Nagel, a five-star analyst according to Tipranks ratings, recently downgraded the shares from Outperform to Perform. He noted that Kevin Plank’s return to the helm is a positive change, though it will require time to improve fundamentals.
Under Armour is rated a Hold overall, based on the recommendations and price targets assigned by 19 analysts over the past three months. The average price target for UAA stock is $7.37, representing a potential upside of 10.33% from current levels.
The stock has been trending downward, shedding 24% year-to-date. It is currently at the low end of its 52-week price range of $6.18 – $9.50 and demonstrates ongoing negative price momentum, trading below its 20-day (6.83) and 50-day (6.94) moving averages. The stock is relatively undervalued compared to industry peers, with a P/E ratio of 12.37x vs. the Apparel Manufacturing industry average of 18.73x.
Closing Thoughts on UAA
While a renowned name in global sports apparel, Under Armour has faced significant challenges in recent years, including frequent leadership changes. The company has initiated a restructuring plan to improve financial and operational efficiencies and overall performance. Yet, with expectations of a drop in revenue for Fiscal year 2025, long-term investors may want to monitor the company’s progress from the sidelines until signs of improvement are evident.
