“The affirmations and positive outlook reflect Under Armour’s improved operating performance and credit metrics as well as very good liquidity,” stated Mike Zuccaro, Moody’s vice president. “Prior to the onset of coronavirus, the company was facing significant challenges reinvigorating revenue growth in North America, its largest market. The company has taken significant action to improve brand health and quality of sales and profitability, particularly in North America, its largest and most challenged market over the past few years. These efforts should lead to sustained margin improvement, positive free cash flow and improved credit metrics as sales growth recovers.”
The upgrade in its speculative grade liquidity rating to SGL-1 from SGL-2 reflects Moody’s expectation for very good liquidity, supported by $1.35 billion of unrestricted cash on the balance sheet as of March 31, 2021, full availability under its unrated $1.1 billion revolver, positive free cash flow and ample covenant headroom.
Moody’s wrote, “Under Armour’s Ba3 CFR reflects its well-known brand and solid competitive position as a leading developer, marketer and distributor of branded performance apparel, footwear and accessories in the U.S. and internationally. Also considered are the company’s track record of innovation and Moody’s positive view of the global sports apparel market, which provides credible longer-term organic growth opportunities, particularly in international markets where the company is significantly underpenetrated. The rating is supported by governance considerations including a conservative financial strategy that focuses on debt reduction and maintaining moderate financial leverage.
“Under Armour is constrained by its reliance on a single brand and limited geographic reach which expose the company to economic cyclicality and inherent changes in consumer preferences in a concentrated region. This is evidenced by recent challenges in its largest market, North America. Under Armour has taken significant action over the past three years to improve its overall profit margins, balance sheet and cash flow. While operating margins remain weak, Moody’s expects improvement over time as turnaround efforts have begun to have a positive effect.”
Photo courtesy Under Armour
