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How Under Armour Has Fared Through COVID-19

By Jennifer Saibil – Sep 8, 2020 at 8:13AM

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The activewear company's falling sales and stock price don't bode well for the future, but there are some positives.

Under Armour (UA 3.76%) (UAA 4.79%) remains the underdog in athletic apparel and footwear sales. And while Americans love an underdog, hoping for a change is a risky strategy for stock market investors. The company, which was once a rising star in performance athletic wear, has been plagued with underperforming sales, the loss of its premium reputation, and an accounting fraud investigation. And that was before COVID-19.

Since Under Armour came into the pandemic already struggling, it was no surprise that its sales dropped 41% in the second quarter ended June 30, which covered most of the global lockdown. Most of that came from wholesale channels, which decreased 58%, while direct-to-consumer revenue fell a milder 13%. Net loss was $183 million. On a positive note, sales were better than the 50% to 60% decline management expected, and gross margin increased 280 basis points year over year to 49.3%.

A man wearing an Under Armour shirt swings a kettle bell.

Image source: Under Armour.

Under Armour has also seen improvement in digital brand engagement and a "meaningful" increase in new users. And an important development for the company is its inventory reduction, which positions it better for rebuilding its name as a premium brand. Even with the sales drop, Under Armour is still a more than $700 million business, and its cash position is a strong $1.1 billion in cash and cash equivalents. 

Under Armour shares are down more than 50% year to date as of Tuesday morning and have a 40% three-year return. They're selling for less than $10, which makes them cheap if investors foresee a comeback. But given where the company's holding right now, investors might want to take a pass.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Under Armour (A Shares) Stock Quote
Under Armour (A Shares)
UAA
$9.84 (4.79%) $0.45
Under Armour (C Shares) Stock Quote
Under Armour (C Shares)
UA
$8.55 (3.76%) $0.31

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