Under Armour (UA, UAA) is scheduled to report results of its third fiscal quarter before the market open on Tuesday, October 31, with a conference call scheduled for 8:30 am EDT. What to watch for: 1. GUIDANCE: In August, Under Armour cut its fiscal 2017 revenue growth view to 9%-11% from its previous 11%-12% growth view and forecast adjusted EPS of 37c-40c, below analysts’ consensus at that time of 43c. The company said Q3 revenue would be “essentially flat” vs. last year and fourth quarter revenue would be up at a low to mid 20% rate. BofA/Merrill analyst Robert Ohmes believes management will lower Q4 guidance due to the highly promotional environment. Deutsche Bank analyst Paul Trussell said earnings will be “limited” amid the continued difficult sales environment and markdown concerns along with its “outsized” investment. 2. RESTRUCTURING, POTENTIAL EXIT OF FULKS, TENNIS: In the wake of weak second quarter results, Under Armour approved a restructuring plan to better align its financial resources to support the company’s efforts as the consumer landscape shifts. As part of the plan, Under Armour is cutting about 2% of its global workforce of 15,000. The company said it is streamlining “all aspects” of the organization to improve business operations. As a result, Under Armour expects to take charges of $110M-$130M this year related to the plan. CEO Kevin Plank commented at the time that “the terrain has changed and so must we,” adding that Under Armour is “out of acquisition mode, into activation mode.” In a move to stem declining sales, Under Armour is currently mulling an exit from tennis and other categories like outdoor gear and fishing, The Wall Street Journal said recently. Additonally, the report noted that co-founder Kip Fulks has taken a sabbatical from the sportswear maker. 3. COMPETITIVE ENVIRONMENT: Analysts and investors will listen for comments from the company on how it views the current athletic environment. BofA/Merrill’s Ohmes said trends have deteriorated at top customers Dick’s Sporting Goods (DKS), Foot Locker (FL), and Hibbett Sports (HIBB), sell-through data on footwear remains week, shares are under pressure from adidas (ADDYY) and lower tier distribution will prove to be brand dilutive. Wells Fargo analyst Tom Nikic downgraded Under Armour to Underperform last month as he believes the athletic wear/footwear space “appears poised to take a breather for now. Nikic said that while the athletic apparel/footwear space was one of the strongest sub-sectors in his group coming out of the recession, he now sees several areas for concern that are not only likely weighing on the industry, but also have the potential to accelerate. The analyst pointed out that athletic trends have worsened, with sneaker retailers now underperforming non-athletic shoe stores for the first since the fourth quarter of 2011, leaving Under Armour “offsides” from a fashion perspective. 4. KOHL’S, CURRY 4: Under Armour has been trying to fuel growth by investing in new endeavors, like footwear and high-end clothing, amid evidence of slowing growth in its sneaker line. Deutshe Bank’s Trussell noted “solid sell through” of Under Armour products at Kohl’s (KSS) and a “positive” initial rollout at DSW (DSW). In shoe news, Jefferies analyst Randal Konik noted “strong” initial response to Curry 4’s youth sizes, which launched last Friday, but the launch of adult sizes will be delayed until November 18, at which point the Curry franchise will rise again. Curry 4 could be set up to be the top basketball sneaker this year, which would be a “huge catalyst” for Under Armour shares. KeyBanc analyst Edward Yruma said Under Armour’s Curry 4 shoe effectively sold out on Foot Locker’s and Under Armour’s website less than two hours after general availability was announced via e-mail.
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