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Sports Stars Can't Save Under Armour (UAA): What Now?

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Shares of Under Armour (UAA - Free Report) are plummeting on Tuesday after the struggling sports apparel company’s second-quarter earnings report sent investors sprinting. The company’s fall from grace happened seemingly overnight, and now investors are stuck wondering: is there any way forward for Under Armour?

Under Armour’s second-quarter revenue was up 9% year-over-year to $1.1 billion and the company beat both Zacks earnings and revenue estimates. Yet UA shares fell 8.04% through mid-afternoon trading and hit a new 52-week low of $18.25 per share in intraday trading.

What Has Under Armour Investors So Spooked?

The company’s revenue figures rose, but investors had become accustomed to years of double-digit quarterly growth. And this quarter marked the third consecutive quarter in which revenue grew less than 20% after a period of massive growth that lasted more than six years.

One of the biggest reasons for the downturn this quarter and today’s massive selloff is the fact that the Maryland-based company’s North American sales grew only 0.3% in the second-quarter. The lackluster North American sales growth looks even worse since the region accounts for more than three-quarters of the company’s total revenue.

Investors are also nervous about the company’s plans to cut roughly 2% of its global workforce, or 280 jobs, as part of a restructuring plan—half of the layoffs will reportedly take place at the headquarters.

Under Armour also lowered its 2017 expectations for revenue growth to 9% to 11% from its previous forecast of 11% to 12%. Under Armour now plans to try to add new wrinkles to its game in the hopes to improve and compete going forward.

Star U.S. athletes, who win on the biggest stages in an array of sports—such as Stephen Curry, Jordan Spieth, and Tom Brady—all rock Under Armour gear, but now it looks like the company is headed in a different direction.

The sports apparel company expects to try to expand its collections for both women and children. On top of that, Under Armour will try to transition its business into more of a life style brand that can be worn outside of athletic activities—in line with rivals Nike (NKE - Free Report) and Adidas AG (ADS - Free Report) .

“The landscape is evolving quickly. Therefore we, too, must evolve quickly,” CEO Kevin Plank said during a call.

It’s All About The Shoes

Under Armour surpassed Adidas to become the second-largest U.S. sports apparel company, behind only Nike, in 2014. Some analysts believed the company would become the third-largest sportswear brand on the planet by 2030.

Two years ago, Under Armour was riding high. Shares had skyrocketed from roughly $13 per share in July 2012 to an all-time high of $51 per share in July 2015.

Under Armour had slowly secured a lineup of some of the most recognizable athletes across some of the biggest sports in the U.S. New England Patriots star Brady was the company’s first big signing back in 2010, and by the summer of 2015, Curry, Spieth, Cam Newton, and Bryce Harper were with the brand.

Curry, Newton, and Harper were crowned MVP of their respective sports in 2015. Spieth grabbed the green jacket as the Masters champion, and Brady’s New England Patriots won Super Bowl XLIX in dramatic fashion.

With stars in the NBA, MLB, PGA, and NFL—where all sports often require their own footwear— shoe sales became vital to Under Armour.

In the second-quarter of 2015 net footwear revenues skyrocketed 40% year-over-year to $154 million. This prompted Under Armour’s CEO to predict that shoe sales would make up an estimated 22% of its projected $7.5 billion in sales by 2017.

Under Armour’s footwear sales hit the $1 billion mark in 2016. However, today’s second-quarter report saw footwear revenue drop by 2% to $237 million year-over-year. One of the biggest reasons for the decline was the lack of sales and internet mocking of Curry 's “Curry 3” sneakers.

Any Positives?

Net revenue grew 88.8% in the Asian Pacific market, which helped bolster Under Armour’s total international growth to 56.8%.

The Asian markets have become basketball crazed with all of the big NBA stars and footwear companies making massive summer tours throughout China and the rest of Asia. Curry and his Golden State Warriors are the odds on favorite to win another NBA title this season, and his new Curry 4’s, which he debuted in the 2017 NBA finals, have been well received.

The two-time NBA MVP’s shoes could prove vital to the company’s success over the next two quarters. But only time will tell if they fly off the selves like the first couple Curry models did.

Strong sales of high retail cost items from golf and football cleats to basketball shoes could help Under Armour get back on track. It desperately needs to, or the company might see investors run far away.

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