Margins to Shrink Even More at Under Armour
This past weekend I was able to experience first hand what is going on at Under Armour’s stores. I must mention that the store I visited was not an outlet store but a regular one inside a big mall.
I happened to be in the Grapevine area in Texas where the Gaylord Texan Resort is located. My thirteen year old daughter had a competition and I decided to take her. So I was naturally able to scout the area in search for clues on how the company is doing.
I started by visiting Dick’s Sporting Goods and to my surprise the store was somewhat empty (meaning no customer traffic) and you couldn’t find many discounts around. I gave my wife the opportunity to look for one item that she likes (she takes yoga classes so I knew she was going to look for some pants or tops), after looking around she settled on some yoga pants but not from Under Armour, it was Nike’s and paid full retail price on them ($63.99). I, on the other hand, got myself an Under Armour cap for which I also paid full retail ($25.00).
On Saturday we went to the Grapevine Mills Mall to take my 3 year old daughter to the Sea Life Aquarium and Legoland while my oldest daughter finished her event at the Gaylord Convention Center. During this time and after having taken care of the little one I decided to look around. An Under Armour store was right next to the aquarium so I got in. Here I could find discounts on the entire store, 40% off on top of the lowest ticketted price. I of course regretted the purchase at Dick’s the day before. We ended up shopping for things we weren’t going to purchase just yet but at those prices who’s to blame. Here’s the ticket so you can see what I’m talking about:
As you can see on the receipt, everything was marked down by 40% so we ended up buying 10 items for only $185.89. As a consumer I couldn't be happier which is why I ended up buying stuff that although I needed, it was not in my plans to do it just yet. On the other hand, and looking at this through the eyes of an investor, it is worrisome to see how the company is marking down its entire store by a big amount in order to keep the revenue numbers from decreasing.
During the same day and at the same mall I visited other stores like Asics, Puma, Adidas & Converse and the closest thing on discount to what UA was offering was at the ASICS store. They were offering a "Buy One Get One 50% off" which translates to a 25% discount at best.
My gut tells me that Management at Under Armour., Inc. (UA) realized after closing the 1st. quarter for 2018 that revenue was showing signs of deceleration. This is why they approved such a big markdown on their merchandise in order to correct the trend for the second quarter. If this is true, we will see weaker than expected revenue for 1Q2018 and lower margins for 2Q2018 but with revamped revenue numbers which will give the impression of a company turnaround. This will please the investors for a while giving time for other strategies in place to have an effect.
I personally like the brand and want to see it succeed but for the moment I think that the stock price will go lower for a little while before getting better. I own some PUT contracts in UA with expiration in July 2018 and others expiring on January 2019.
I happened to be in the Grapevine area in Texas where the Gaylord Texan Resort is located. My thirteen year old daughter had a competition and I decided to take her. So I was naturally able to scout the area in search for clues on how the company is doing.
I started by visiting Dick’s Sporting Goods and to my surprise the store was somewhat empty (meaning no customer traffic) and you couldn’t find many discounts around. I gave my wife the opportunity to look for one item that she likes (she takes yoga classes so I knew she was going to look for some pants or tops), after looking around she settled on some yoga pants but not from Under Armour, it was Nike’s and paid full retail price on them ($63.99). I, on the other hand, got myself an Under Armour cap for which I also paid full retail ($25.00).
On Saturday we went to the Grapevine Mills Mall to take my 3 year old daughter to the Sea Life Aquarium and Legoland while my oldest daughter finished her event at the Gaylord Convention Center. During this time and after having taken care of the little one I decided to look around. An Under Armour store was right next to the aquarium so I got in. Here I could find discounts on the entire store, 40% off on top of the lowest ticketted price. I of course regretted the purchase at Dick’s the day before. We ended up shopping for things we weren’t going to purchase just yet but at those prices who’s to blame. Here’s the ticket so you can see what I’m talking about:
As you can see on the receipt, everything was marked down by 40% so we ended up buying 10 items for only $185.89. As a consumer I couldn't be happier which is why I ended up buying stuff that although I needed, it was not in my plans to do it just yet. On the other hand, and looking at this through the eyes of an investor, it is worrisome to see how the company is marking down its entire store by a big amount in order to keep the revenue numbers from decreasing.
During the same day and at the same mall I visited other stores like Asics, Puma, Adidas & Converse and the closest thing on discount to what UA was offering was at the ASICS store. They were offering a "Buy One Get One 50% off" which translates to a 25% discount at best.
My gut tells me that Management at Under Armour., Inc. (UA) realized after closing the 1st. quarter for 2018 that revenue was showing signs of deceleration. This is why they approved such a big markdown on their merchandise in order to correct the trend for the second quarter. If this is true, we will see weaker than expected revenue for 1Q2018 and lower margins for 2Q2018 but with revamped revenue numbers which will give the impression of a company turnaround. This will please the investors for a while giving time for other strategies in place to have an effect.
I personally like the brand and want to see it succeed but for the moment I think that the stock price will go lower for a little while before getting better. I own some PUT contracts in UA with expiration in July 2018 and others expiring on January 2019.
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