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Under-Over on Under Armour: Greenberg

I love it when analysts veer from the pack for non-valuation reasons. That’s just what Jefferies analyst Taposh Bari did with his report Wednesday on Under Armour.

Under Armour
Scott Boehm | Getty Images
Under Armour

This is a company I highlighted several months ago. The reason now, as then, was inventories, which have been growing faster than sales—always a red flag.

The company had hoped to get them in sync by the end of last quarter.

Bari isn’t convinced they will.

Thanks to warm weather, he believes Under Armour will miss estimates when it reports next Thursday.

If he’s right about the impact of weather, he believes high inventories will continue to dog the company

From his report:

UA exited 3Q11 with sales up 42 percent and inventories up 63 percent (21 point spread) but guided that spread to narrow by the end of 4Q11. We now think there is risk to that expectation (upward bias to inventories, downward bias to sales). Our view is supported by unusually high markdowns (25-40 percent off) on core product at both UA's website and factory stores. Marked-down items include ColdGear mocks and Storm Cotton hoodies (in basic colors) along with Charged Cotton basic T's whose premium price points do not seem to be holding. The fact that we have yet to see this degree of promotionality at the sporting goods channel leads us to believe that retailers may be sitting on inventory…”

Which in turn could be a blow to future demand. Worth watching.

The company declined comment saying that it is currently in a pre-earnings quiet period.

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