Under Armour Inc. (UA, UAA) reported third quarter revenues that not only missed analysts‘ expectations but they also had their first ever year-on-year revenue decline, of 5%, since its IPO in 2005. UA’s press release cut its 2017 revenue growth outlook to “low single-digit percentage rate” from an earlier estimate of 11% and its gross margin down 220 basis points. Projected 2017 operating income is expected to be $0-$10 million, and an inventory increase of 22% to $1.2 billion. While international revenues were up 35%, North American revenues, which make up 83% of UA’s 2016 total revenues, were down 12%.
CEO Kevin Plank reiterated UA’s discounting problem, the North American full-priced wholesale distribution channel is being challenged by competitors, such as Adidas (ADS GR), and discounted online purchasing. Furthermore, UA’s pre-eminence is in the “performance gear” athletic sector which is declining in popularity to the “ath-leisure” sportswear and streetwear sector, which they have not been able to dominate yet.
Short selling in the Footwear and Athletic Apparel sectors has been increasing recently, with short interest in the top ten shorts increasing by $787 million in October. UA is the second largest short in the sectors, and it is climbing rapidly with an increase of $685 million in October.
| Footwear/Athletic Apparel Sectors
(in $ millions) |
Ticker | Short
Interest |
1 Month
Change in Short Int. |
10-30-17
YTD MTM P/L |
YTD MTM
P/L % |
| Nike Inc. | NKE | $1,854 | +$497 | -$153.0 | -9.68% |
| Under Armour Inc. | UAA/UA | $1,471 | +$15 | +$684.9 | +47.57% |
| VF Corp. | VFC | $1,370 | +$89 | -$440.0 | -29.54% |
| Hannesbrands Inc. | HBI | $1,331 | -$156 | -$63.9 | -6.06% |
| Lululemon Athletica | LULU | $527 | +$78 | +$29.6 | +5.74% |
| Addidas AG | ADS GR | $324 | +$81 | -$48.3 | -23.81% |
| Decker Outdoor | DECK | $292 | +$67 | -$82.4 | -33.27% |
| Gildan Activewear | GIL | $263 | +$45 | -$20.6 | -1.85% |
| Skechers USA | SKX | $234 | +$70 | -$89.9 | -41.63% |
| Wolverine Worldwide | WWW | $210 | +$6 | +$3.0 | +1.43% |
| Asics Corp. | 7936 JP | $206 | -$5 | +$40.7 | +23.10% |
Under Armour’s “A” share (UAA) stock price is down 17.7% and its “C” share (UA) stock price is down 15.2% on today’s news. Short sellers are up an additional $251 million in mark-to-market profits today, bringing their year-to-date total to $936 million. We’re seeing additional short selling today, an increase of $54 million in short exposure in this morning’s trading.
Most of the top ten shorts in the sectors have seen increased short selling over the last month. Under Armour’s poor results may be a signal to further weakness in the sector and even more short selling. Today’s sector price weakness is offsetting some of this year’s earlier sector short losses, and if stock prices continue to trend downwards, we should see more short selling as short conviction becomes even stronger.
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Contact: Ihor.Dusaniwsky@S3Partners.net
Managing Director Predictive Analytics, S3 Partners, LLC
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