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Dec. 17, 2021, 7:52 a.m. EST

Under Armour downgraded as athletic category faces vanishing stimulus cash and inflation heading into 2022

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By Tonya Garcia

Under Armour Inc. shares fell 4.5% in Thursday trading after the stock was downgraded to hold from buy by Stifel, with analysts highlighting the challenges facing the sports and athletic category in 2022.

Stifel cut its Under Armour /zigman2/quotes/208967132/composite UA +6.46% /zigman2/quotes/204420722/composite UAA +6.15% price target to $24 from $30.

“We remain impressed with turnaround achievements and strategic direction,” wrote analysts led by Jim Duffy. However, Stifel says higher inventory at outlets raises the possibility of more discounting to come.

“Earnings upside becomes more dependent on revenue acceleration/upside for which visibility is challenging and our confidence is low,” the note said. “Checks showing higher levels of outlet inventory vs. pre-pandemic levels raise concern of a return of promotional pressure to margins.”

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Moreover, upside potential is lowered by difficult comparisons ahead for sports apparel and shoes. In a separate note reviewing a number of companies, Stifel says demand was higher than supply in 2021, with shoppers bolstered by fiscal stimulus cash. Companies that are more dependent on wholesale channels could be at a disadvantage.

“Inflation, however, is outpacing growth in nominal disposable income and year to year growth in consumer discretionary spending capacity is set to slow meaningfully as stimulus benefits fade,” analysts said.

“As 2022 unfolds, the industry will try to rebalance supply with demand.”

Among the companies in which Stifel has confidence are Allbirds Inc. /zigman2/quotes/229904251/composite BIRD +8.96% , Lululemon Athletica Inc. /zigman2/quotes/204011506/composite LULU +0.98% , On Holding AG /zigman2/quotes/229331620/composite ONON +1.31% and Nike Inc. /zigman2/quotes/203439053/composite NKE -0.04% , though analysts cut their price target on Nike shares to $202 from $213. All of these stocks are rated buy.

See: Allbirds has big growth potential but competitors like Nike could be a speed bump, analysts say

And: Newly public On Holding is following in New Balance’s footsteps, in Baird’s view

Stifel cut Dick’s Sporting Goods Inc.’s /zigman2/quotes/200566298/composite DKS +11.94% price target to $113 from $130 and maintained the hold stock rating.

“[W]e remain mindful that the combination of stimulus, catch-up spending in team sports, and tight inventory supply have been a powerful elixir to full-margin consumer demand,” the note said.

As industry inventories start to normalize, e-commerce margins could see pressure from comparison shopping, said the note.

Stifel also downgraded Columbia Sportswear Co. /zigman2/quotes/206868136/composite COLM +1.77% to hold from buy, and cut its price target to $111 from $126.

“With unseasonably warm temperatures and late arrival of any measurable snowfall to key population centers in the U.S., we are concerned about U.S. wholesale channel partner and U.S. DTC sell-through of outerwear and boots season to date,” analysts wrote in a third note.

At the same time, supply chain delays and late arrival of goods could create an inventory overhang, promotional pressure on margins, and “more subdued” wholesale orders for the second half, said the note.

Analysts expect the massive supply-chain pressure in 2021 to ease in 2022. But for Columbia Sportswear, and other companies, this could come with a separate set of problems.

“Important drivers of 2021 margins to multi-year highs have been lower promotional activity, lower wholesale customer accommodations, and lower closeouts,” Stifel said in the Columbia downgrade note.

“Inventory excess carried into 2022 could cause these drivers to reverse. We note, these dynamics are not necessarily Columbia specific. Broader category influence could trigger reactive promotion that changes the competitive backdrop from the goldilocks conditions for full-priced selling in 2021.”

Columbia Sportswear stock fell 3.4% in Thursday trading. Shares have gained 9.5% for the year.

Under Armour stock is up 24.5% for 2021, outpacing the benchmark S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.07% , which has gained 24.3%.

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US : U.S.: NYSE
$ 8.74
+0.53 +6.46%
Volume: 3.18M
May 25, 2022 12:25p
P/E Ratio
18.65
Dividend Yield
N/A
Market Cap
$3.99 billion
Rev. per Employee
$327,339
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/zigman2/quotes/204420722/composite
US : U.S.: NYSE
$ 9.67
+0.56 +6.15%
Volume: 3.91M
May 25, 2022 12:25p
P/E Ratio
20.65
Dividend Yield
N/A
Market Cap
$3.99 billion
Rev. per Employee
$327,339
loading...
/zigman2/quotes/229904251/composite
US : U.S.: Nasdaq
$ 4.81
+0.40 +8.96%
Volume: 989,127
May 25, 2022 12:25p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$660.53 million
Rev. per Employee
$409,292
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/zigman2/quotes/204011506/composite
US : U.S.: Nasdaq
$ 260.03
+2.51 +0.98%
Volume: 1.27M
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P/E Ratio
34.75
Dividend Yield
N/A
Market Cap
$34.28 billion
Rev. per Employee
$215,745
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/zigman2/quotes/229331620/composite
US : U.S.: NYSE
$ 18.56
+0.24 +1.31%
Volume: 1.49M
May 25, 2022 12:24p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$5.70 billion
Rev. per Employee
$684,403
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/zigman2/quotes/203439053/composite
US : U.S.: NYSE
$ 107.25
-0.04 -0.04%
Volume: 3.49M
May 25, 2022 12:25p
P/E Ratio
28.33
Dividend Yield
1.14%
Market Cap
$168.85 billion
Rev. per Employee
$639,754
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/zigman2/quotes/200566298/composite
US : U.S.: NYSE
$ 79.74
+8.50 +11.94%
Volume: 30.24M
May 25, 2022 12:25p
P/E Ratio
5.69
Dividend Yield
2.47%
Market Cap
$5.69 billion
Rev. per Employee
$241,995
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/zigman2/quotes/206868136/composite
US : U.S.: Nasdaq
$ 73.85
+1.29 +1.77%
Volume: 103,616
May 25, 2022 12:24p
P/E Ratio
13.33
Dividend Yield
1.62%
Market Cap
$4.56 billion
Rev. per Employee
$391,951
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,944.07
+2.59 +0.07%
Volume: 914.06M
May 25, 2022 12:25p
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