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Why Under Armour Stock Dropped Today

By Steve Symington - Dec 12, 2018 at 4:39PM

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The performance athletic apparel leader outlined its long-term vision -- and the market wasn't pleased.

What happened

Shares of Under Armour (UA -1.48%)(UAA -1.09%) were down 11.2% as of 3:15 p.m. EST Wednesday as the market was underwhelmed by revised guidance provided by the athletic apparel and footwear specialist at an investor meeting today.

More specifically, Under Armour just unveiled a new long-term strategic plan targeting a return to low double-digit growth by 2023, including a mid- to high-single-digit compound annual growth rate (CAGR) over the next five years led by its international and direct-to-consumer (DTC) businesses. Under Armour also expects to increase its earnings per share at a five-year CAGR of roughly 40%. 

Interior of Under Armour's Chicago Brand House

IMAGE SOURCE: UNDER ARMOUR.

So what

Those targets look good at first glance. But some investors are balking that they assume more modest low-single-digit annual growth over the next five years from the company's core North American segment, which represented nearly two-thirds of total sales through the first three quarters of 2018.

Speaking of which, Under Armour revised its 2018 outlook to call for gross margin to be roughly flat on a year-over-year basis, marking a slight improvement from "flat to down slightly" from 45.1% in 2017. Under Armour also now expects to incur a 2018 operating loss of $40 million to $55 million, widened from its previous range of a $50 million to $55 million loss. And on the bottom line, the company now expects to generate adjusted (non-GAAP) earnings per share this year of $0.21 to $0.22, compared to its old range of $0.19 to $0.22. However -- and though we don't typically pay close attention to Wall Street's demands -- most analysts were already modeling 2018 earnings near the high end of that range.

Looking ahead to fiscal 2019, Under Armour is targeting revenue growth of 3% to 4%, assuming flat sales in North America and low double-digit growth internationally, which should translate to earnings per share of $0.31 to $0.33. Here again, consensus estimates were predicting 2019 earnings closer to $0.35 per share on revenue growth of 5%.

Now what

Of course, given its relative outperformance of late -- the stock surged more than 20% in late October, for example, after Under Armour posted strong third-quarter results relative to expectations -- there's always room for Under Armour to over-deliver as it implements its strategic vision in the next few years. In the meantime, however, its seemingly conservative goals appear to have left the market wanting more.

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Stocks Mentioned

Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$10.92 (-1.09%) $0.12
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UA
$9.99 (-1.48%) $0.15

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