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Under Armour’s shipping strife

Nearly all of sports apparel maker Under Armour [UAA]’s factories from which the group sources its products are up and running after being shut for months because of the coronavirus pandemic, but constraints lie ahead, the company said in its third-quarter earnings report.

“Nearly all factories that Under Armour does business with, including those in Vietnam, are open," finance chief David Bergman said.

It still had to cancel some of its spring/summer range to ease pressure on the factories that will not get fully up to speed and full capacity until the end of the year, reports Reuters.

The Under Armour share price has jumped around 20% since the middle of October on hopes that the production bottlenecks that have plagued the clothing industry in recent months are improving. At the 9 November close, it sat at $24.75, compared with $19.99 on 11 October.

As a result, Under Armour hiked its full-year forecasts for earnings per share to hit 74 cents, above analysts’ estimates of 55 cents. Revenue is estimated to rise about 25%, reports CNBC, compared with its previous forecast for an increase in the low twenties.

 

Supply chain congestion

Shipping delays are likely to be a short-term problem as global economies re-adjust after COVID-19, and shoppers’ long-term trend toward adopting sportswear and athleisure is likely to beat the tape in the end.

Still, for 2022 chief executive Patrik Frisk said that “there’s congestion at every step of the chain ” such as a lack of containers, port-access issues, and slow unloading processes. Bloomberg reported, that Frisk expects transit times to be longer than usual over the next several quarters due to bottlenecks.

Under Armour has switched to more expensive air freight and will have to continue doing so in the first half of next year, the CEO said, adding “We see logistics and shipment being the biggest concern for us…We have to be strategic in what we’re actually delivering into the market based on the capacity that we’re able to get through the pipes.”

Rival Nike [NKE] recently cut its annual sales forecasts to mid-single-digit growth compared with a previous outlook of low double-digit growth because of COVID-19-related problems in Vietnam and Indonesia.

It also highlighted rail and port congestion, increasing lead times for goods arriving in North America.

Despite this Nike announced last week that it is ramping up investment and production in Vietnam.

 

Analyst call

Analysts remain bullish about both Nike and Under Amour stocks. According to MarketScreener, Nike has a consensus ‘buy’ rating and a $179.41 target price.

Analyst firm Trefis likes Nike’s sales growth — up 16% year-over-year in the first quarter, and  65% of them came at full price. Nike’s online performance was a highlight.

 

Boosting brand image

Analysts on Market Screener have a consensus ‘outperform’ rating on Under Armour and a $29.03 target price.

They believe that Under Armour – as well as Nike and Adidas [ADDYY] – are set to continue benefiting from the boom in athletic wear. This was noticeable during the pandemic when people working at home swapped their suits and skirts for more comfortable leggings and hoodies.

Under Armour has also been investing more in its marketing and pulling its clothes out of discounter stores to beef up its brand image, reported Reuters.

"UA remains one of the few that successfully raised its pricing power, rather than simply enjoyed higher prices on lower industry promotions," brokerage BMO Capital Markets told Reuters.

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