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Under Armour is killing its brand by selling at cheap retailers, stock to drop 30%: Analyst

Key Points
  • Shares of Under Armour skid after Susquehanna analyst Sam Poser downgrades stock.
  • The analyst likens Under Armour to Reebok and warns the company against advertising at lower-priced retailers like Kohl's and DSW.
  • "Sell Under Armour. The Under Armour brand remains at risk," says Poser, whose $11 target represents 31 percent downside from Monday's close.
Kevin Plank, founder and chief executive officer of Under Armour Inc., speaks during the 2017 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S., on Friday, Jan. 6, 2017.
Patrick T. Fallon | Bloomberg | Getty Images

Shares of Under Armour fell 3.7 percent Tuesday after one Wall Street firm downgraded the athletic clothing maker to negative.

Despite a 30 percent rally in the past eight weeks, Under Armour will reverse course and lose all of those gains in the next year, according to Susquehanna Financial Group.

"Sell Under Armour. The Under Armour brand remains at risk," analyst Sam Poser warned in a note to clients. "Given poor brand distribution decisions, we believe Under Armour risks are becoming more like Reebok than Nike. … There is no fundamental recovery in sight."

Highlighting "poor brand management," Poser said the company could shed market cap if it continues to advertise with lesser retailers. In the analyst's view, advertising with "moderate" retailers — an industry term to reflect prices — is causing "better" retailers like Dick's and Hibbett to plan to reduce their Under Armour business.

"Better sports retailers are the heart and soul of Under Armour's heritage and long-term profitable growth opportunities," wrote Poser. "The opening of distribution to Kohl's, DSW, and Famous did change the perception of Under Armour, and not for the better."

Under Armour did not immediately respond to CNBC's request for comment.

Poser's $11 price target represents 31 percent downside from Monday's close over the next 12 months. The company is down 48 percent over the past 12 months, though it's up 17 percent in the last month.

To be sure, the debate around Under Armour's future — and pricing point — is heated, with some analysts more positive on the company's future. Stifel analyst Jim Duffy upgraded shares to buy in December, lauding the company's cost saving initiatives and improved performance.

"We believe the underlying brand equity is not yet permanently damaged," Duffy wrote. "The U.S. apparel business is at a near-term glass ceiling and the footwear business needs a reboot but, big picture, international and footwear growth potential remain compelling."

CNBC's Michael Bloom contributed to this report.

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