What happened
Week to date, shares of Under Armour(NYSE: UA)(NYSE: UAA) are down 8.6% as of 8:49 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence.
The culprit is bad news from Foot Locker. The athletic retailer called out softening demand trends that investors are concerned will lead to worse-than-expected earnings results through the holiday season.
So what
Investors are concerned about what Foot Locker's news means further up the supply chain. Under Armour, Nike, and Adidas are major suppliers to Foot Locker, so it's no surprise that all three stocks fell this week. Nike was down 4%, while Adidas slid 5.5%.
Under Armour underperformed the big three athletic wear brands since it is more vulnerable to weakness in the wholesale channel, such as selling goods to retailers. The company reported revenue fell 2% year over year (YOY) in the fiscal first quarter ending in June, with wholesale revenue down 6%.
Under Armour also doesn't have the e-commerce strength of Nike and some other brands. This would be an area that could help offset wholesale weakness, but Under Armour's online sales increased only 6% YOY last quarter.
Now what
In its last earnings report, Under Armour maintained its full-year outlook for revenue to be flat to up slightly over last year. Gross margin is also expected to be up slightly, but Wall Street is clearly not confident it will meet these targets.
Households are still dealing with rising energy costs and interest rates. With these headwinds still pressuring spending patterns, investors are pricing in the likelihood of a weaker holiday shopping season than previously expected.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike and Under Armour. The Motley Fool recommends Foot Locker and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
