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Under Armour’s Bonds Downgraded to Junk Status by S&P Global Ratings

Sonya Bells - Author
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Nov. 20 2020, Updated 12:18 p.m. ET

S&P puts Under Armour in the junk category

S&P Global Ratings lowered the credit rating of Baltimore-based Under Armour (UAA) stock to junk status after the company reported weak 4Q16 results and a gloomy sales outlook. The rating on Under Armour’s bonds was cut from BBB- to BB+, putting the company’s debt below investment-grade level.

The rating agency has a negative outlook on UAA. Under Armour issued $600 million bonds in 3.25% notes in June 2016.

Moody’s Investors Service reaffirmed its Baa2 rating on UAA, which is two notches above junk status. However, Moody’s lowered its outlook on the company’s debt to negative.

ETF investors seeking to add exposure to Under Armour (UAA) can consider the SPDR Consumer Discretionary Select Sector ETF (XLY), which invests 0.30% of its portfolio in the company. XLY also invests 2.9% in Nike (NKE), 0.68% in VF Corp. (VFC), and 0.43% in Coach (COH).

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What’s behind the downgrade?

S&P Global Ratings cited persistent competition and pricing pressures as the key reasons behind the downgrade and stated that “margins will weaken due to intense competition in North America, a shift in growth toward less-profitable international markets and the athletic footwear segment.”

UAA reported its 4Q16 results on January 31, 2017. The company missed its Wall Street earnings and revenue forecasts.

Under Armour’s total sales increased 12% YoY, growing at the slowest rate in the past 26 quarters. The company missed its 20%+ growth rate mark.

Management outlook

Under Armour’s (UAA) CEO, Kevin Plank, stated that the results were negatively impacted by a highly promotional environment, sports retailer bankruptcies, and a poor holiday season. UAA’s CFO, Chip Molloy, who joined the company about a year ago, also announced his sudden decision to step down.

The company’s management dialed down sales and operating forecasts, causing its stock to fall 25% after the results announcement.

Please read the next section to learn about Under Armour’s recent stock market performance and analyst recommendations for the company.

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