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Under Armour Reopens Stores in Phases: Will it be the Same?

Zacks Equity Research

Under Armour, Inc. UAA has begun reopening of its owned stores in North America in a phased manner, and has brought 50% of its outlets back in business already. Management will continue reopening outlets on a case-by-case basis in consultation with the government and public health officials. Reopening store decisions in countries outside of North America are being made in adherence to local guidance and consultation with government officials across these markets.

The company has designed stringent health and safety protocols and is taking steps to protect associates and consumers in reopened stores. These steps include training teammates on safety protocols, limiting store hours and store occupancy, adding hand sanitizing stations in the stores, shutting down all fitting rooms temporarily and labelling spaces to adhere to social distancing at checkout and high-traffic areas. Moreover, it is communicating "House Rules" with the help of posters in the stores.

However, shares of the leading apparel and footwear company have plunged 37.9% compared with the industry’s 12.5% decline. The stock came under pressure following the company’s dismal first-quarter 2020 performance, thanks to COVID-19-led closure of a vast majority of stores. The company posted wider-than-expected loss in the said quarter. Also, its top line fell sharply from the year-ago period and missed the Zacks Consensus Estimate for the second quarter in row. Sales declined across all categories, except Connected Fitness. Under Armour had earlier notified that it expects second-quarter 2020 revenues to decline as much as 50-60%.

Management had cautioned that as operations resumed, the company has to encounter challenges such as slow and progressive return to normalization, a highly promotional environment, and significant uncertainty in brick-and-mortar traffic.

Nevertheless, this Zacks Rank #3 (Hold) company has been taking steps to address challenges, including lowering operating expenses, managing inventory receipts and negotiating payment terms. Moreover, the company estimates accomplishing roughly $40-$60 million of pre-tax benefits in 2020 as part of its restructuring plan approved by the board on Mar 31. The restructuring plan has been designed to rebalance cost base in order to reinforce cash flow generation.

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