Footwear Pressured As Under Armour Cuts View, Nike Gets Downgrades

Shares of Under Armour (UA) are sliding after the company cut its second quarter and full year guidance to reflect The Sport Authority's bankruptcy. Wall Street analysts don't seem alarmed by the cuts, with Deutsche Bank and Jefferies seeing the event as largely one-time in nature. However, Under Armour appears not to be the only company in the sector facing headwinds. Nike's (NKE) stock is also lower after it was downgraded this morning to Neutral equivalent ratings by two research firms, which noted a rise in competition and an overall weakening of the athletic apparel and footwear sector.

LOWERED GUIDANCE: Last night, Under Armour announced that it is revising its previously issued outlook for the full year and second quarter of 2016 following developments related to the bankruptcy proceedings of The Sports Authority. Under Armour now expects 2016 net revenues of approximately $4.925B, representing growth of 24% over 2015, and 2016 operating income of approximately $440M-$445M, below the previous $503M-$507M.

MINOR HEADWIND: Deutsche Bank analyst Dave Weiner sees Under Armour's lowered second quarter and 2016 guidance as one-time in nature and due nearly entirely to The Sports Authority's liquidation. Weiner believes the company's reiteration of its second quarter profit forecast excluding Sports Authority should come as a relief to those concerned about company and sector trends. The analyst reiterated a Buy rating and $53 price target on Under Armour's shares. Jefferies analyst Randal Konik also views the Sports Authority bankruptcy as a minor near-term headwind for Under Armour that will largely be one-time in nature. The brand is still in the "early innings of growth," Konik told investors. However, the analyst noted that he remains concerned about high expectations, the stock's valuation and the potential rise of Adidas (ADDYY) back into the U.S. market. He reiterated a Hold rating on Under Armour's stock and lowered his price target on the shares to $42 from $45.

LOSING MARKET SHARE: Meanwhile, separate from Under Armour's news, Bank of America Merrill Lynch analyst Robert Ohmes downgraded Nike to Neutral from Buy, as he believes the company is losing footwear market share in North American for the first time since 2010. Channel checks indicate elevated product in outlet store and off-price channels due to weakness in technical footwear and apparel sell-through, the analyst told investors. Ohmes sees Nike's technical innovation slowing and believes that continued momentum of Under Armour and increasing momentum of Adidas have increased competition for key industry talent and endorsements. The analyst lowered his price target on Nike's shares to $60 from $72. Morgan Stanley analyst Jay Sole also downgraded Nike to Equal Weight, a rating equivalent to Neutral, from Overweight as the U.S. athletic apparel category weakens and competition increases. The analyst said SportScan data indicates that Nike's first quarter core channel sales growth slowed to (1%) driven by retail bankruptcies, consumer's shift to online shopping, new entrants that are fragmenting the market, and major supply chain issues. Sole pointed out that Adidas strategic changes has helped it regain "U.S. brand momentum," while Under Armour's Steph Curry basketball footwear has taken 800 basis points of share from Nike year-to-date. The analyst lowered his price target on Nike's shares to $60 from $69.

PRICE ACTION: In morning trading, shares of Nike had slipped about 1.2% to $54.54, while Under Armour's stock had dropped about 6% to $35.46 per share.