Under Armour’s results will embarrass some investors
Today's Financial News - Posted January 15, 2009
The news out of Under Armour (NYSE:UA) was anything but good. Still, it was nothing that any level-headed investor could not have seen coming. The investors blind to the facts are paying dearly.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Well, gee whiz. Who would have guessed that an icon like Under Armour (NYSE:UA) would be hurt by an economy that wants absolutely nothing to do with growth?
A whole slew of investors did not think it was possible, that is for sure.
Even while the rest of the nation’s retailers wretched in pain as consumers cut up their credit cards and ate the scraps, Under Armour proponents swore the company had the magic beans that could make its profits grow.
Fortunately, there are always quarterly reports to take them back to reality.
While yesterday’s figures are only preliminary, they are a strong indicator of what management has in store. What’s more, they are proof of the over-zealous sentiment surrounding this marketing-fueled company.
Previously, Under Armour analysts predicted Q4 earnings of $0.49 per share, with full-year results of $1.09. They were swinging for the fences and ended up missing the ball entirely.
Management tells us to expect a figure of just $0.16 to $0.18 for the quarter and $0.76 to $0.78 for the year. Ouch.
That is embarrassing
Do me a favor and take a look at the retail industry. Thrifties like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are barely holding on, while trendy stores like Abercrombie and Fitch (NYSE:ANF) and American Eagle (NYSE:AEO) are getting hammered by dismal holiday results.
Which brands do you think Under Armour has that most in common with?
Over the next few months, the retailers that sell the company’s products will do everything they can to reduce their inventories to match slumping consumer demand. That means they are canceling orders and cutting their prices.
The cancellations will weaken future earnings figures and the reduced prices will weaken the company’s vital brand image.
The economy that made Under Armour a dominant player is dead. Welcome to a brand new set of rules.
Consumers are no longer willing to pay a premium for a product when there are suitable substitutes. Just look at McDonalds (NYSE:MCD) and Starbucks (NASDAQ:SBUX).
Wanna play?
Shares of Under Armour have dropped by about 20% in the last five trading days, from $25 to about $19.50. Even though I believe shares are still over-valued, there is little chance of the company to dropping much closer to it’s all-time low of $16.05.
The best way to play this company is to stay away from it until it becomes less volatile. But if you absolutely must try your hand, buy below $20 and sell above $24.50.
This week’s news should be a lesson to investors that make their moves on marketing hype versus weighing a company’s fundamental value. Hopefully, it was not an expensive lesson.
Next Article: Logjam in delayed foreclosures to hit U.S. real estate values in 2009
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