Here’s Why Under Armour’s Top Line Has Been under Pressure
Slowing growth at Under Armour
Under Armour (UAA) has been one of the best growth stories in the sportswear segment. Its top line grew at an average of 30% between fiscal 2010 and fiscal 2015. The company started 2016 on a healthy note as sales increased at an average of 29% in the first two quarters. However, as it reached the end of fiscal 2016, growth slowed down to 11.7%. The first quarter of 2017 was even worse with a 6.6% increase in sales.
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What’s behind the slowdown?
Under Armour achieved high levels of growth anchored by strong innovations and celebrity endorsements between 2010 and 2015. The company’s Curry series challenged the dominance of Nike (NKE) and almost displaced Adidas (ADDYY).
However, Adidas came back with a bang in 2016, and the sales of its Classic Superstar shoe increased sixfold during the year. It also became the top-selling active shoe in the US, a spot that had always belonged to industry leader Nike.
Despite the increasing competition from Adidas, Nike has managed positive sales growth in North America. NKE reported a 3% increase in its North America business when it reported fourth quarter results on June 29. However, North America represents only 45% of Nike’s total sales, and Nike posted double-digit growth in international markets, which helped its top line post 5.3% growth.
In comparison, Under Armour’s revenue in North America, which still accounts for close to 80% of its total sales, fell 1% during 1Q17. Besides competition, retail bankruptcies have also hit Under Armour hard.
UAA’s management expects a one percentage point increase in 2Q17 revenue as compared to Q1. Wall Street expects a 7.6% YoY increase in 2Q sales. The second half of 2017 is projected to be stronger, with revenue growing at a mid-teen rate.
ETF investors seeking to add exposure to UAA can consider the SPDR Consumer Discretionary Select Sector ETF (XLY), which invests 0.2% of its portfolio in the company.