Nike Vs. Under Armour: Comparing Expectations

The athletic apparel industry comes into focus as Under Armour Inc (NYSE: UAA) is set to release first-quarter earnings next week. Deutsche Bank maintains a Hold rating and a $17 price target ahead of earnings, citing mixed channel checks.

Breaking Down Under Armour

According to the German-based bank, Under Armour is seeing solid sell through at recently partnered Kohl's Corporation (NYSE: KSS), as well as ongoing favorable trends at Dicks Sporting Goods Inc (NYSE: DKS). This was offset, however, by weaker direct-to-consumer efforts and wholesale footwear challenges.

“With consumers still leaning toward lifestyle product vs. performance, competitors (Nike Inc (NYSE: NKE) and adidas AG (ADR) (OTC: ADDYY)) (re) gaining momentum, and the overall retail backdrop choppy at best; it is unclear whether UAA can re-accelerate its apparel business to a level necessary to maintain guidance.”

With current trends pushing consumers to opt for more lifestyle apparel and footwear, Under Armour’s late entrance into this space remains problematic according to Deutsche Bank.

Parcing Nike

Deutsche Bank remains bullish on competitor Nike ahead of its bull/bear debate scheduled for Thursday. The firm has lowered fiscal-year 2018 EPS estimates to $2.43, down from $2.60, and notes that North America re-acceleration is taking longer than expected and that FX pressure should intensify next year.

Bull Talking Points For Nike:

• Athletic still outperforming in North America.
• Nike is the market leader.
• North America business should soon re-accelerate.
• International opportunity is significant and could help drive growth.
• Numerous levers could drive gross and operating margins.
• The diversified business model compared to competitors.

Bear Talking Points:

• Athletic is losing momentum in North America.
• Competitors are eroding Nike’s share, especially in North America.
• International growth obscured by FX pressure.
• Recent gross margin performance is disappointing.
• The decision to not provide preliminary FY 2018 guidance is concerning.

Deutsche Bank maintains a Buy rating on Nike with a $64 price target.

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