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VOL. 44 | NO. 8 | Friday, February 21, 2020

Under Armour suffers another blow in heated retail contest

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NEW YORK (AP) — The contest for athletic wear customers has left once high-flying Under Armour, which has a large distribution center in Mt. Juliet, dented and bruised as competitors pull ahead.

The company's stock recently took another hit in a years-long decline after it announced a costly restructuring and said the virus outbreak in China would hurt sales. Under Armour's market value has been cut in half since 2015 as competition heated up with companies including Lululemon and Nike and consumers demanded trendier workout attire.

Lululemon has been a key beneficiary of the shift to workout gear that can be worn straight from work to the yoga studio or gym, known as "athleisure wear." Its stock has soared over the last several years as it notches solid sales gains in the key North American market.

Nike still remains the dominant company for athletic wear and gear and, like Lululemon, has built up sales in North America.

"Under Armour is failing to earn back shelf space at key full-price customers as quickly as hoped. We think this is partially due to strength at key competitors and partially due to Under Armour's own missteps," wrote Keybanc Capital Markets analyst Edward Yruma, in a note earlier this month.

Under Armour surprised investors by saying it expects to incur between $325 million and $425 million in restructuring costs in 2020. That's on top of a sales hit of up to $60 million from the virus that has been spreading in China and globally.

Patrik Frist, in his first earnings conference call as CEO, said the company's supply chains could suffer because of factory closures in China. The impact could linger through the year.

"Looking at the greater marketplace and how consumption, consumer behavior and overall economic shifts could potentially play out, is where it gets even more unclear," he said.

Under Armour put part of the blame for its struggles in North America on heavy discounting that may have eroded the willingness of customers to pay full price for its brand. The company said it could be forced to scrap the opening of a Flagship store in New York.

Wall Street street analysts haven't given up on Under Armour yet and still hold a generally solid view of the company's prospects for a turnaround.

"While the outlook for a turnaround remains murky, the new senior management appears more aware of Under Armour's current position in the marketplace, and the challenges facing the company, than prior senior management," wrote Susquehanna Financial Group analyst Sam Poser, in a note to investors.

Edward Yruma, an analyst at Keybanc Capital Markets, said the company could be poised for a healthy resurgence because of its focus.

"The focus on performance differentiates it from competitors that are more focused on fashion," Yruma, in a note to investors. "International and footwear remain promising and largely untapped growth opportunities."

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