Please ensure Javascript is enabled for purposes of website accessibility

Under Armour Is Bracing for Pricing Challenges as Inventory Piles Up

By Demitri Kalogeropoulos – Updated Jul 31, 2020 at 9:14AM

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

Customer traffic trends are expected to be weak for the rest of 2020.

On Friday morning Under Armour (UA 0.09%) (UAA -0.08%) revealed operating results for the second quarter, which captured the deepest impact on the retailing business from COVID-19 shutdowns.

Sales dove 41% as most of its athletic apparel stores were closed to customers for much of the period, the company said. This slump generated an adjusted operating loss of $131 million.

As bad as those headline numbers were, investors were bracing for even bigger sales and profit declines.

A jogger laces up their shoes.

Image source: Getty Images.

Under Armour notched some wins in the period, including by boosting e-commerce sales and bulking up its cash holdings. But the chain still risks some major pricing pressures over the next few quarters as it works through elevated inventory in a potentially shrinking market. Inventory holdings jumped 24%, in fact, to $1.2 billion after having risen 7% in the previous quarter.

"We remain appropriately cautious," CEO Patrik Frisk said in a press release, "due to continued uncertainty related to consumer shopping dynamics, the potential for a highly promotional environment, and proactive decisions to reduce inventory." Under Armour declined to issue a new outlook for the year but noted that it expects customer retailing traffic to remain lower for the rest of 2020.

Demitrios Kalogeropoulos owns shares of Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.

Premium Investing Services

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