Under Armour's big miss shows just how bad things have gotten for retail

Under Armour under pressure after earnings miss

Under Armour's fourth-quarter sales miss shows just how tough things have gotten for retail.

After reporting 26 quarters of greater than 20 percent sales growth, the athletic wear company — which has been dramatically outperforming the broader industry — said revenue increased just 12 percent in the fourth quarter.

Heavy promotions, high inventory levels and the ripple effects of Sports Authority's bankruptcy all weighed on the company's results, and those pressures are expected to continue in 2017.

Investors fled Under Armour's stock Tuesday, after the company said CFO Chip Molloy will leave in February, and issued a weak revenue forecast of nearly $5.4 billion. That would represent growth of 11 to 12 percent this year. Shares of Under Armour were last changing hands at $21.54, a decline of 26 percent.

"Retail without question is being disrupted," CEO Kevin Plank told analysts. "[But] we believe that we own a large part of it."

Stephen Curry Under Armour basketball shoe is displayed in San Rafael, California.
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Bricks-and-mortar players have released a steady stream of disappointing holiday results over the last month. Yet many thought that Under Armour, a relatively young company, would continue to best the broader market. Although its 12 percent growth did, in fact, outperform the sector as a whole, the rate of its deceleration spooked investors.

"I think it's probably just the initial shock," Susan Anderson, a consumer research analyst at FBR Capital Markets, told "Squawk Box."

Plank attributed some of the company's slowdown to many of the same headwinds that have been crippling its competitors. They include weak traffic, which led to "significant" promotional activity that happened "earlier, deeper and broader" than expected.

He also cited competition from what's become a crowded athletic wear space, and last year's Sports Authority bankruptcy. The company will continue to face those headwinds in early 2017.

But Plank also shouldered much of the blame, saying Under Armour failed to deliver on fashionable performance wear. Instead, it relied on basic styles to carry the bulk of its business.

"The consumer today frankly has more options," he said.

The company's decision to expand its footwear and international businesses, which carry lower gross margins, also continued to weigh on profitability. Still, Plank emphasized that Under Armour would continue investing in its growth, adding it would pick its shots to best serve the bottom line.

Despite that promise, Susquehanna footwear analyst Sam Poser downgraded Under Armour's shares to neutral from positive, citing "disappointing results, extremely weak guidance, elevated inventory and [the] resignation of the CFO."

"Management may be doing what's right for the brand over the long term, but 2017 sales and EBIT outlook are too low for us to continue to recommend the stock," he said.

Under Armour reported fourth-quarter earnings of 23 cents per share, below analysts' consensus estimate of 25 cents per share, according to Thomson Reuters. Revenue fell even more shy of Wall Street's expectations, coming in at $1.31 billion compared with $1.41 billion expected.