Apparel and footwear companies have lost billions of dollars due to the pandemic. Even after the easing of lockdown restrictions, it will take a while for these companies to bounce back as tough economic conditions and massive unemployment will have an impact on customers’ discretionary spending.
Amid the current crisis, we will place Nike and Under Armour against each other using the TipRanks’ Stock Comparison tool to see which stock is in a better position to recover based on the Street’s opinion.
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It is not that Under Armour was flourishing before the pandemic. Slowing sales growth, intense competition from Nike, Adidas, and Lululemon in North America, focus on performance footwear and apparel rather than athleisure, and SEC’s investigation into the company’s accounting practices made investors skeptical about Under Armour.
In July, Under Armour disclosed that the company, Kevin Plank (its former CEO and current executive chairman) and David Bergman (current CFO) received Wells notices from the SEC in connection with a previously disclosed probe. The SEC investigation looked into the timing of Under Armour’s sales to check whether the company tried to make them appear healthier than they were. As of September 1, the stock plunged 52% year-to-date.
Meanwhile, Under Armour’s second-quarter revenue declined 40.6% Y/Y to $707.6 million as 80% of the locations where the brand was available were closed through mid-May and strength in e-commerce was not enough to offset the loss of business from physical stores. Apparel, footwear and accessories revenues plunged 42%, 35% and 47%, respectively. North America revenue was down 45% while international business decreased 34%. Under Armour slipped into an adjusted loss per share of $0.31 in the second quarter.
The company cautioned that though most of the stores have reopened, traffic trends continue to be significantly lower than the prior-year period and this weakness is expected to remain for the remaining of 2020. Under Armour anticipates its revenue to decline by 20% to 25% in the second half of 2020.
In an attempt to rebuild its premium brand positioning, management is reducing its exposure to the off-price channel and is focusing on its direct-to-consumer business.
On August 3, Susquehanna analyst Sam Poser upgraded Under Armour stock to Hold from Sell as he believes that the company is well-positioned for 2021 as the pandemic gave it the needed time to reset its business. Poser raised his price target to $9 from $4.
The analyst feels that the company must “pull back on its presence in the moderate channel at retailers such as Kohl's, Famous Footwear, DSW, SCVL, TJX, ROST, and BURL in order to become the premium brand it once was and to which it aspires to be.” (See UA stock analysis on TipRanks)
Overall, Under Armour stock has a Hold consensus based on the last three months’ ratings, which include 2 Buys, 9 Holds, 1 Sell. The stock might gain 5% over the next 12 months as indicated by the average analyst price target of $9.63.
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The footwear and apparel giant was not spared by COVID-19 as reflected in its fiscal 2020 fourth-quarter (ended May 31) results. However, Nike’s commentary about recovery in the reopened markets and continued momentum in digital business reflects the strength of its business model even in an extremely challenging environment. By the end of June, about 90% of Nike’s owned-stores reopened worldwide.
Nike’s digital sales grew 75% (79% on a currency-neutral basis) in the fiscal fourth quarter and in fact crossed the $1 billion threshold in annual digital revenue in Greater China as well as in the EMEA (Europe, Middle East and Africa) region for the first time. The company continued to experience strong digital momentum even as stores began to reopen.
To support the surge in online shopping amid the pandemic, Nike increased its digital fulfillment capacity by over three times in North America and EMEA in the fiscal fourth quarter.
However, the closure of retail stores had a major impact on the top line and led to a 38% Y/Y decline in the company’s fiscal fourth-quarter revenue of $6.31 billion. The company slipped into a loss per share of $0.51 compared to an EPS of $0.62 in fiscal 2019’s fourth quarter.
Looking ahead, Nike expects a sequential improvement in its fiscal 2021 quarters as retail markets reopen across the globe. Digital business will continue to be a key priority for Nike as the company aims for 50% digital penetration compared to its previous goal of 30% by 2023. Since February, Nike’s e-commerce app has been downloaded over 8 million times.
Innovation also continues to be a key growth driver for the company. Recent launches include Pegasus 37, Air Max 2090 and VaporMax 2020). (See NKE stock analysis on TipRanks)
On August 19, Susquehanna analyst Sam Poser reiterated his Buy rating for Nike and increased the price target to $150 from $130. The analyst is optimistic that the company will move beyond its Fiscal 2023 revenue target of $50 billion as improving trends, cost savings from planned layoffs, the DTC (direct-to-consumer) focus and forex tailwinds push results higher.
Nike stock had advanced 13% year-to-date as of September 1. However, the average analyst price target of $113.48 is below Poser’s price target and does not indicate any further upside in the coming 12 months. That's despite an optimistic Strong Buy Street consensus.
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Nike takes the lead
Under Armour is taking several measures to turnaround its business. But the current crisis poses additional hurdles for the company to rebound. As reflected in the Street’s bullish consensus, Nike is poised to emerge stronger post COVID due to its brand power, innovation, and strong digital penetration.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment
