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Under Armour Takes Hit From Coronavirus

By John Ballard - Feb 11, 2020 at 10:04AM

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The challenges are mounting for the athletic apparel brand.

Under Armour (UA 1.80%) (UAA 1.83%) just can't seem to find a groove. The athletic wear maker has been struggling to recover its past glory after the stock peaked in late 2015. While there were a few bright spots in its fourth-quarter earnings report, revenue fell short of expectations, sending the stock down 17%. 

Further, its first-quarter outlook calls for a negative impact to revenue of $50 million to $60 million related to the coronavirus outbreak, which has already killed more than 1,000 people. Management made it clear that this outlook could change, given the "evolving situation." Guidance also doesn't include the costs from a potential restructuring initiative in 2020 "to improve profitability." 

A woman running and wearing apparel from Under Armour.

Image source: Under Armour.

How bad is it?

Revenue for the fourth quarter came in at $1.4 billion, up 4%, but lower than the $1.47 billion expected. One bright spot was an increase in gross margin of 230 basis points, driven by lower discounts to wholesale partners, sales mix, and supply chain improvements.

The expected impact from the coronavirus for the first quarter represents about 1% of Under Armour's annual revenue, but when revenue only increased by 1% in 2019, every little bit counts. 

2020 could be another rough year

"Under Armour is an operationally better company following our transformation over the past few years, with a clearly defined and focused strategy, enhanced go-to-market process, cleaner inventories and a stronger balance sheet," as CEO Patrik Frisk explained. 

But Frisk highlighted the real problem for Under Armour when he cited "ongoing demand challenges" for the company's weak performance. That's not a good position to be in, given the stellar growth at Nike and lululemon athletica.

John Ballard owns shares of Lululemon Athletica. The Motley Fool owns shares of and recommends Lululemon Athletica, Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.

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Under Armour, Inc. Stock Quote
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