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Wednesday, December 7, 2022

Why Under Armour Stock Stumbled Today

What happened

The stock of Under Armour (NYSE:UAA) (NYSE:UA) lost ground to the market on Friday, dropping 9% by 12:30 p.m. ET today, compared to a 0.3% decline in the S&P 500. The decline was sparked by news that the retailer is struggling with supply chain challenges.

So what

Revenue for the holiday period that ended in late December was up 8% after accounting for currency exchange swings. That result was just above most investors’ hopes.

Image source: Getty Images.

The company also logged a higher gross profit margin, allowing it to beat earnings forecasts for the fourth quarter and full year. “I am proud of how consistently our global teams continue to execute our plan,” CEO Patrik Frisk said in a press release.

Now what

Instead of that good news, investors focused on management’s cautious outlook for the next several months. For the current quarter, sales will rise in the mid-single-digit range, executives said.

While that would mark solid sales gains, Under Armour said supply chain issues will hold growth back by around 10 full percentage points to start 2022. Inventory fell 9% this quarter, implying tight supply today.

The spring and early summer will also show reduced profitability due to rising freight costs and other shipping challenges. These factors mean earnings per share will fall to between $0.02 and $0.03 in the first quarter compared to $0.17 a year ago, according to management.

That soft outlook is no threat to the wider investing thesis for the business since executives believe supply chain issues will ease beginning in mid-2022. However, investors were hoping that Under Armour could avoid significant inventory challenges, which now appear set to have a meaningful (if temporary) impact on growth this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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