The future of American sportswear brand Under Armour seems dubious due to changing trends in the athletic apparel sector and a loss of interest from the teenage demographic
On Tuesday, sportswear giant Under Armour (NYSE: UAA) reported its first-ever decline in sales as a public company. The brand, which had been widely considered the biggest up-and-comer in the athletic apparel industry until recently, has tanked a massive 75% since it’s 2015 highs and 44% in total this year, rendering it one of the worst performing stocks on the contemporary market. Subsequently, Under Armour has slashed its profit and revenue expectations for the second time in three months, sending shares down more than 20% during yesterday’s trading.
Is a Changing Market to Blame?
In the past, the American brand had been accustomed to experiencing solid growth since it’s debut as a publicly traded company 12 years ago. At the beginning of last year, things were still moving smoothly for the sportswear retailer, as revenue was growing at a tidy rate of 30% per annum. However, since then the business has witnessed its sales fall drastically, particularly so in North America. This is due by large to the brands’ inability to acclimatize to changing trends occurring within its target market.
That is, not long ago, consumers wore Under Armour products both for their functionality and as a fashion statement, but shifting fashion trends have eroded the brand’s popularity as street wear. What’s more, the company’s retail ubiquity may have hurt its cachet with fans, as the brand has expanded into a number of sports that are outside of its core focus in recent years, including fishing, tennis, and outdoor gear. This seems to suggest that the company’s business model has been focusing more on functionality than on fashion, which is a likely strong catalyst to falling sales figures. The same can be said for rival brand Nike (NYSE: NKE), who likewise reported lacklustre results at earnings call back in September.
However, one sportswear retailer has notably dodged the downwards trend within the sector, namely European powerhouse Adidas (ETR: ADS). The company has managed to move alongside the changing market by placing a heavy focus on street fashion and aesthetics. That is, the brands recent popularity can be largely indebted to the likes of it’s retro ‘classics’ segment and shoe lines (‘Stan Smith’ and ‘Superstar’ trainers being amongst Adidas best sellers). As such, Adidas has raised its 2017 guidance whilst it’s contemporaries have slashed profit expectations, and has additionally reported a sales growth of 26% in North America in its last fiscal quarter.
Is Under Armour Losing Steam in the Teenage Market?
According to Piper Jaffray’s ‘Taking Stock With Teens’ research survey conducted earlier last month, Adidas has experienced some of the biggest gains in garnering teens’ affection, which has likely been a driving force behind the recent surge in its stock price. Alternately, the same survey reported that young males, in particular, classify Under Armour as an irrelevant “old brand”.
As such, the decline in interest that the adolescent market expresses for Under Armour could continue to take an even greater toll on the performance of the stock. As teens are estimated to contribute a staggering $830 billion to North American retail sales, appealing to this demographic is undeniably important. Thus, it looks as though Under Armour will need to rethink it’s entire branding if it is to claw it’s way back to popularity within the changing athletic-wear market. As such, the stock looks set to continue it’s downward spiral, at least for the time being.
(By Kathleen Craig, Research)
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