Companies having to fight with such formidable competitors as Amazon and deal with weak consumer demand have plunged from their 52-week highs more than any stocks of the S&P 500 as of Monday.
Under Armour Inc. and Foot Locker stock prices have declined by around half over the past year, with disappointing earnings results precipitating several steep drops in recent quarters. Two, Foot Locker and Kroger, were previous high-fliers, delivering returns of 223% and 199%, respectively, for the 10 years leading to Dec. 31, 2016, before turbulence struck in 2017.
On Monday, Under Armour, the worst performer, traded around $16.53 per share, a 58.8% decline from its 52-week high. Foot Locker, the second worst, was priced around $34.59, 56.5% off its 52-week high.
Under Armour, the world’s third-largest athletic company, which almost doubled its revenue over the past three years, announced a restructuring plan in August to enable it to meet the challenges of the evolving retail landscape.
“We are utilizing 2017 to ensure that operations across our diverse portfolio of sport categories, distribution channels and geographies are optimized as we are building a stronger, faster and smarter company,” Kevin Plank, Under Armour chairman and CEO said in a release.
Dampening its fiscal year were expectations of roughly $110 million to $130 million in pre-tax related charges to lay off employees, terminate facility, leases and contracts, along with inventory and other related costs. The charges will mostly hit the company’s financial in the third quarter, Chief Financial Officer David Bergman said on a second-quarter conference call.
Under Armour’s sales continued to grow in the second quarter, with revenue increasing 9% year over year. The growth was undercut by flat revenue in North America, though sales outside the segment rose 57%. Expectations in revenue for the year also dropped to a range of 9-11% from the company’s previous projection of 11-12%.
Gross margins at the company fell and are falling. They declined 190 basis points to 45.8%, and The company expects a further drop of 160 basis points for the full year on management of inventory levels in North America. Gross margins will also suffer from increased international sales, which carry lower margins.
Net margins fell for the third straight quarter, to a negative 1.13% from 6.3% in the second quarter of 2016.
Under Armour had $166 million on its balance sheet at quarter-end and long term debt of $778 million, with a financial strength rating from GuruFocus of seven out of 10.
The company has a price-earnings ratio of 34.7, the third highest among its 20 closest peers. Its price-book ratio of 3.57 and price-sales ratio of 1.46 are both near respective five-year lows.
Harming Foot Locker’s market value was the headlining news in its second-quarter earnings report that the company expected a tough market to continue through the end of 2017. Chairman and CEO of the athletic shoe chain Richard Johnson also said he expected a 3-4% sales dip for the year.
“We are obviously disappointed in the results for the quarter, and our team is working quickly to adjust our operations to a changed retail landscape in which we are seeing our consumers move faster than ever from one source of inspiration or influence to another,” Johnson said.
The harsh environment also ate at the company’s quarterly margins, with net margins sinking to 3%, their lowest of the trailing-12 months. Gross margins also deteriorated to 29.57%, their lowest for the same period.
A number of good signs vouch for Foot Locker as well. Foot Locker had $1.04 billion in cash on its balance sheet as of July 29, with $126 million in debt. At the low share price, it repurchased 350,000 shares, spending $21 million. Foot Locker has a strong history of repurchasing shares, with a share buyback ratio of 4.4% for three years, higher than 97% of its competitors in the footwear and accessories industry. Its second quarter repurchase continues a share count reduction trend going back to 2010.
It has a high Piotrosky F-score of eight out of eight, suggesting it is far from bankruptcy. Its price-earnings ratio at 7.76, price-book ratio of 1.52 and price-sales ratio of 0.58 are each near their respective five-year lows.
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