Stifel lowered its ratings on Under Armour due to sales and margin concerns and Columbia Sportswear on weather risks. Both stocks were reduced to “Hold” from “Buy.” Stifel reiterated its “Buy” rating on Nike but lowered its price target.
On Under Armour, analyst Jim Duffy wrote in a note that he has “lower confidence in the potential for revenue and margin upside across FY23.” Duffy believes that upside is limited due to higher consensus estimates, difficult comps in 2022, and potentially higher inventory levels leading to a more promotional environment.
“Earnings upside becomes more dependent on revenue acceleration/upside for which visibility is challenging and our confidence is low. Checks showing higher levels of outlet inventory verus pre-pandemic levels raise the concern of a return of promotional pressure to margins,” wrote Duffy. “We remain impressed with turnaround achievements and strategic direction and continue to see our prevailing estimates of $6bn sales and $0.82 EPS in FY23E as achievable. Lower confidence in upside potential, however, sobers our view of multiple potential, and we see risk/reward largely in balance.”
Stifel reduced its price target on Under Armour to $24 from $30. On Thursday when the note was issued, shares of Under Armour closed at $21.37, down $1.00.
On Columbia, Duffy is concerned that unseasonably warm weather and late snowfalls could affect Columbia’s sales. “In combination with supply chain delays and late arrival of goods across the industry, we see a risk of an inventory overhang, promotional pressure to margin and more subdued wholesale orders for 2H22,” he commented.
Duffy wrote in a note that checks on Columbia.com show unusual promotion on core men’s and women’s outerwear items and retailer checks show price breaks on private label brands, suggesting sluggish category demand.
Duffy wrote, “Important drivers of 2021 margins to multi-year highs have been lower promotional activity, lower wholesale customer accommodations, and lower closeouts. Inventory excess carried into 2022 could cause these drivers to reverse. We note these dynamics are not necessarily Columbia-specific. Broader category influence could trigger reactive promotion that changes the competitive backdrop from the goldilocks conditions for full-priced selling in 2021.”
Stifel reduced its price target on Columbia to $111 from $126. Shares of Columbia sunk on Thursday to $95.67, down $3.39.
Stifel reaffirmed its “buy” rating on Nike while lowering its price target to price target to $202 from $213. On Thursday, shares of Nike closed at $162.72, down $1.18.
In a note previewing Nike’s Q222 earnings that arrive on December 20, Duffy said he was trimming his F2Q-F4Q22 sales estimates to reflect challenges in Greater China. Near-term, Duffy believes consensus China estimates “are too ambitious.” He slightly lowered his EPS estimates for 2022 as well as FY23 earnings and revenues targets for Nike to reflect China’s uncertainty and recent strength in the U.S. dollar.
Duffy wrote, “Supply-oriented shocks are likely non-recurring, and represent an opportunity for a positive reversal in FY23. Any weakness in NKE shares could be an opportunity for accumulation in a category-dominant global growth company that is evolving to a higher return model.”
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