On Friday, Citi maintained a Neutral rating on Under Armour (NYSE:UA), Inc. (NYSE:UAA) stock but raised the price target to $12.00 from the previous $8.00. The adjustment follows Under Armour's second-quarter earnings per share (EPS), which exceeded consensus expectations due to stronger gross margins and lower selling, general, and administrative (SG&A) expenses. Management at Under Armour has revised its future earnings per share (EPS) guidance for fiscal year 2025 upwards from $0.19-0.22 to $0.24-0.27.
The firm noted that while management's updated guidance is conservative, their own estimate for fiscal year 2025 EPS stands at $0.42. They acknowledged the efforts of Under Armour's management in cost management and brand repositioning in North America (NAM), which is expected to significantly surpass the provided guidance within the year.
Despite these positive steps, the report pointed out that with a 13% decline in North American sales during the second quarter, there is no immediate indication of a brand turnaround, which is not anticipated until the second half of 2025 at the earliest.
The analysis also mentioned the challenges Under Armour faces in regaining lost shelf space within the competitive athletic retail market, especially if competitors like Nike (NYSE:NKE) enhance their innovation. Following a 30% increase in share price after the second-quarter results and a 70% rise since early August, Citi expressed the view that the stock's valuation appears stretched at current levels. The firm suggested that further upside to the share price may be limited until there is clearer visibility of a positive shift in the North American market.
In other recent news, Under Armour reported mixed results for Q2 2025, with an 11% decline in revenue to $1.4 billion and a decrease in e-commerce sales. Despite these challenges, the company reported an adjusted operating income beat of $50 million. Under Armour is now shifting its focus towards premiumization and enhancing direct-to-consumer channels, planning to allocate half of this income beat to the fiscal 2025 outlook and the other half to marketing efforts.
The company is also set to open a new flagship store at its Baltimore headquarters, and plans to invest significantly in marketing, including a $40 million increase in the second half of fiscal 2025. Analysts have noted that Under Armour's direct-to-consumer strategy is evolving, with 50% of e-commerce revenue now coming from full-price sales.
Additionally, the company is managing a wholesale reset and optimizing logistics, with restructuring charges expected to total $140 million to $160 million by fiscal 2026. Under Armour maintains a low double-digit revenue decline outlook for fiscal 2025, but has raised its gross margin improvement forecast to 125-150 basis points. Lastly, an investor meeting is scheduled for December 2023, to discuss marketplace strategies.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Under Armour's financial position and market performance. The company's market capitalization stands at $4.56 billion, reflecting its current valuation in the market. Despite the challenges noted in the article, Under Armour has shown impressive price momentum, with a 31.1% return over the past month and a substantial 67.62% return over the last six months, aligning with Citi's observation of the recent stock price surge.
InvestingPro Tips highlight that Under Armour operates with a moderate level of debt and its liquid assets exceed short-term obligations, which could provide some financial flexibility as the company navigates its turnaround efforts. However, it's worth noting that the company was not profitable over the last twelve months, although analysts predict profitability this year.
The stock's recent performance has been strong, but investors should be aware that the RSI suggests the stock may be in overbought territory, which aligns with Citi's view on the stretched valuation. For those interested in a deeper analysis, InvestingPro offers 11 additional tips for Under Armour, providing a more comprehensive view of the company's financial health and market position.
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