Please ensure Javascript is enabled for purposes of website accessibility

Under Armour Takes Hit From Coronavirus

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$10.03 (1.83%) $0.18
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UA
$9.05 (1.80%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
389%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.