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Tuesday saw Citi reaffirm its Neutral stance on Under Armour (NYSE:UA), Inc. (NYSE:UAA) stock, maintaining a price target of $8.00. The firm predicts that the company will surpass second-quarter earnings per share (EPS) expectations when it reports before the market opens on November 7, 2025, attributing the potential beat to stronger gross margins compared to consensus. Management is anticipated to modestly increase its fiscal year 2025 EPS guidance due to better gross margins and to provide third-quarter guidance that aligns with consensus expectations.
Despite the potential for earnings per share to outperform consensus this year, driven by strict expense management and improved gross margins, Citi expresses concern regarding Under Armour's revenue prospects. The firm points to the brand's continued struggles in North America, with no significant improvement expected until at least late 2025. Citi's analysis suggests a 17% decline in North American sales for the second quarter and casts doubt on the company's ability to meet its full-year 2025 sales guidance, which forecasts a 10% decline.
The note from Citi acknowledges that while the market sentiment towards Under Armour is generally negative, the stock has seen a substantial increase of approximately 28% since mid-September. However, the firm advises caution, considering this recent surge a potential risk for investors. The lack of clarity on the brand's turnaround in the North American market and the management's projection that strategies will not materially affect North American sales until the fall or holiday season of 2025 contribute to Citi's view that the risk/reward balance is currently unfavorable for Under Armour.
In summary, Citi's outlook on Under Armour is cautious, with an emphasis on the company's earnings performance and management guidance in the face of ongoing challenges in brand perception and sales within the North American market. The upcoming second-quarter results and fiscal year 2025 guidance will be critical indicators of the company's trajectory and its ability to navigate a difficult retail environment.
In other recent news, Under Armour has been the subject of several updates from analysts. BMO Capital has raised its target for the company, citing potential for significant earnings growth. This optimism is based on Under Armour's new strategy, "Achieve More by Doing Less," which emphasizes profitability over volume. In contrast, Morgan Stanley downgraded the stock due to concerns about limited growth prospects. Meanwhile, Telsey Advisory Group, Williams Trading, and Truist Securities adjusted their outlooks on Under Armour, reflecting the company's recent strategic changes and restructuring efforts.
Under Armour also reported a surprising profit in its first quarter, leading to an upward revision of its annual profit forecast. This success is attributed to a strategic shift toward selling higher-margin items and reducing inventory. However, the company plans to incur additional restructuring charges estimated at around $70 million in fiscal years 2025 and 2026, following their decision to shut down a major distribution center in Rialto, California.
In terms of executive changes, Eric J. Aumen will assume the role of principal accounting officer from October 1, 2024. This was announced during Under Armour's recent Annual Meeting of Stockholders, where several other key decisions were also approved. These developments are part of Under Armour's broader restructuring initiative aimed at revitalizing its brand and improving its market position. These are the recent developments for Under Armour as it navigates the competitive sportswear market.
InvestingPro Insights
Recent InvestingPro data provides additional context to Citi's analysis of Under Armour (NYSE:UAA). The company's market capitalization stands at $3.63 billion, reflecting its current position in the sportswear market. Despite Citi's concerns about revenue prospects, InvestingPro data shows that Under Armour's revenue for the last twelve months as of Q1 2025 was $5.57 billion, although it experienced a revenue decline of 5.15% during this period.
InvestingPro Tips highlight that Under Armour "operates with a moderate level of debt" and has "liquid assets exceed short term obligations," which could provide some financial flexibility as the company navigates its challenges in the North American market. Additionally, the tip noting a "strong return over the last three months" aligns with Citi's observation of the stock's recent 28% surge since mid-September.
Interestingly, while Citi maintains a Neutral stance with an $8 price target, InvestingPro's Fair Value estimate for Under Armour is $13, suggesting potential upside that the market may not be fully recognizing. This discrepancy could be worth considering for investors evaluating the stock's risk/reward profile.
For a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide deeper insights into Under Armour's financial health and market position.
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