Shares of Under Armour (NYSE: UA) (NYSE: UAA) plunged more than 50% over the past 12 months due to a streak of decelerating sales growth and declining margins. Investors are still bearish on the stock, with 28% of its Class A shares and 19% of its Class C shares shorted as of Jan. 10.
Under Armour was considered the "next Nike (NYSE: NKE)" during its heyday, but analysts now expect its revenue to rise just 2% this year as its earnings tumble 58% on margin pressure. So how did the company lose its magic over the past few years? Let's take a look back at its six biggest blunders.
Image source: Under Armour.
1. Losing the North American market
Under Armour's North American revenue fell 12% annually last quarter but still accounted for 77% of its top line -- compared to 83% in the prior year period. It struggled in this region due to three factors: the saturation of the footwear market, the bankruptcies of major retailers like Sports Authority, and tough competition from market leaders Nike and Adidas (NASDAQOTH: ADDYY).
In their most recent quarters, Nike's North American revenue fell 5% annually, but Adidas' North American revenue surged 19% on the strength of celebrity-backed brands like Kanye West's Yeezy shoes and its "Boost Technology" soles for runners. Simply put, Adidas is stealing North American market share from both Under Armour and Nike.
2. Pivoting toward lower-margin footwear
Over the past few years, the weight of Under Armour's footwear business has risen relative to its apparel business. This is troubling, because footwear usually has lower margins than athletic apparel.
The company also needs to pour more cash into pricey footwear marketing campaigns featuring big endorsers like Steph Curry to keep pace with its larger rivals. Those costs are reflected in its declining operating margin over the past three years.
Data source: YCharts.
3. Trying to hit too many price points
As revenue fell, Under Armour launched more shoes across multiple price tiers. It inked partnerships with lower-end retailers like Kohl's and DSW but also emphasized a "premiumization" strategy with high-end products like its flagship Curry shoes and Dwayne "The Rock" Johnson's Project Rock Delta shoes.
The problem with this strategy is that it assumes Under Armour has the brand appeal of Nike or Adidas, which would enable it to sell cheaper shoes without hurting its brand. Unfortunately, its slumping sales and declining margins strongly suggest otherwise.
4. Failing to keep the Curry popular
Under Armour also spent tens of millions of dollars on its high-profile contract with Steph Curry over the past several years, but the popularity of his Curry shoes has significantly waned. The troubles started with the Curry 2 Low in 2016, which was widely mocked as resembling "nurse shoes".