Citi Research downgraded Under Armour to “Sell” from “Neutral,” warning that the company’s North America (NAM) turnaround faces challenges against heightened competition and a reliance on promotions.
While Under Armour reported third-quarter results last Friday, February 6, that exceeded consensus targets, “there are several reasons we are cautious on the NAM brand turnaround,” Citi analyst Paul Lejuez wrote in a note. He cited a highly competitive environment, weak direct-to-consumer (DTC) traffic and the need for heavier marketing investment.
The downgrade came shortly after Under Armour had lifted its full-year outlook following stronger-than-expected third-quarter results, which had previously sent the shares higher. The new rating suggested that risks were skewed to the downside, reversing the recent positive sentiment.
Lejuez noted that Under Armour reiterated that fiscal 2027 will be a stabilization year in North America, implying flat sales. However, Lejuez said the company still needs to prove that the brand is gaining traction with consumers before major wholesale partners materially increase shelf space or orders.
“DTC trends in NAM remain weak due to weak traffic trends,” the analyst wrote, adding that promotions in the region were a 140-basis-point headwind to third-quarter gross margin.
“3Q results show UAA is still needing to promote to drive traffic, implying the need to invest more in brand building/marketing to prove to their key retailer partners that their customer is seeking out the brand,” he said. “This is a tough proposition to underwrite given how competitive the athletic environment is in the U.S., where other brands like Nike, On, Hoka, Salomon, Adidas (among others) are focused on gaining market share in wholesale.”
He also noted that while Under Armour officials implied order-book rates were improving, “It’s tough to see a brand turnaround in North America next year.”
Lejuez said, “While order books suggest UAA is not seeing the same shelf space losses that hurt their North American wholesale business in FY26, UAA will need to prove their brand is resonating with the consumer before key retailers like Dick’s Sporting Goods and JD Sports look to meaningfully plan their UA business up.”
He also flagged a slowdown in the EMEA region, which was “previously a bright spot.” Currency-neutral sales decelerated from high single digits in the first half to 2 percent in the third quarter, with macro pressures, particularly in the U.K., weighing on demand.
Citi projects the EMEA region to show growth of 1.5 percent in Under Armour’s fiscal 2027 year, below consensus expectations.
Lejuez further warned that Under Armour is likely to face another year of negative free cash flow in fiscal 2026 and said it will be “tough for UAA to grow EPS in F27.” With shares up about 25 percent following the third-quarter earnings release and trading at 15.2x fiscal 2027 EV/EBITDA, “we see the risk/reward skewed to the downside,” the analyst said.
Citi raised its fiscal 2026 EPS estimate to 15 cents a share from 6 cents on lower SG&A and taxes in the third quarter, but maintained its fiscal 2027 forecast at 14 cents, below the analysts’ consensus of 22 cents.
Citi maintained its $6.20 price target.
Following the release of favorable third-quarter results that included a guidance lift, shares of Under Armour rose by $1.19, or 19.3 percent, to $7.34 on Friday. On late-afternoon trading Tuesday, shares were trading down 68 cents, or 8.7 percent, to $7.18.
In guidance issued last week, Under Armour said it now expects fiscal 2026 adjusted EPS of 10 to 11 cents, compared with prior guidance of 3 to 5 cents. Management said the fall order book in North America was “encouraging” and noted that while traffic remains soft, “underlying indicators are improving.”
The company continues to forecast a 4 percent decline in annual revenue, narrowing its previous guidance for a 4 percent to 5 percent drop. Analysts had been expecting an average 4.2 percent decline.
Image courtesy Under Armour
