Institutional Support For Under Armour (NYSE: UA) is on the rise, albeit still low at only 37%. The salient point is that, after 3 consecutive quarters of net-selling, the institutional activity shifted in Q2 2022 and bullishness is carrying into the 3rd quarter as well. The institutional activity was robust in Q2 and is similarly strong in the first weeks of Q3 netting a combined value of shares worth 3.2% of the current market cap with shares near the two-year low. Assuming this trend continues, the price action in Under Armor should bottom soon but there are risks to the outlook. 

The four analysts that rate the stock have it pegged at a Moderate Buy with a price target more than 200% above the current price action but take that with a grain of salt. The most recent shoutouts were February, the oldest last August, so none truly reflect the state of the market. Since the last rating change, an upgrade to Overweight with a price target increase as well, the bottom has fallen out of the market due to margin compression and other factors that may not allow a meaningful rebound in the near term. 

Under Armour Digs Deep For Tepid Quarter 

Under Armour has been struggling with growth and margins all year and is working hard to overcome the headwinds. That said, the revenue of $1.35 billion is flat on a YOY basis and beats the consensus estimates but only by 150 basis points. On a channel basis, Wholesales grew by 3% but were offset by a -7% decline in DTC and a -6% decline in eCommerce. On a regional basis, gains in North America were flat, while spotty results in International markets resulted in a net decline of 3% for the segment. In regard to product lines, sales of footwear led with a gain of 1%, offset by a 1% decline in apparel and a 13% decline in accessories. 

Moving on to the margin, the company reported an increase in both the gross margin and SG&A expenses that cut into the bottom line results. Gross margin contracted on higher freight costs, higher than expected promotional activity, and FX headwinds while SG&A increases are related to higher wages and other input costs as well as legal expenses. 

The really bad news, however, is the guidance that is calling for better-than-expected growth but weaker than expected margin. The company is looking for FY revenue growth in the range of 5% to 7% versus the 5.75% consensus estimate but for margins to shrink 225 basis points more than previously indicated. The adjusted EPS should come in between $0.47 and $0.53 versus the expected $0.61, which is bad news overall. The takeaway is the market seems to have taken the news in stride and may have priced it into the stock already. 

Under Armour? Or Nike? 

Under Armour may have increasing institutional support but it doesn’t have a dividend like its competitor Nike (NYSE: NKE) and Nike seems to be navigating the current supply chain, inflation, and consumer environment pretty well. Nike only yields 1.0% or so, but it is a safely growing distribution as well and it is on track for Dividend Aristocrat status. The company is paying out a mere 30% of its earnings compared to 50% or 60% for many aristocrats which suggests many years of increases could be sustained even without earnings growth. Nike shares are down like most stocks in the market, but they are outperforming Under Armour which is more than 60% lower in the same time frame.