Under Armour shares skyrocket but competition with Nike is still a threat

Under Armour Inc. shares have skyrocketed more than 25% in Tuesday trading, but analysts are sounding an alarm about being too optimistic after the athletic brand reported a decline in North America amid rising competition with Nike Inc.

Under Armour

UAA, +27.71%

UA, +24.75%

 reported adjusted earnings per share that soared past consensus, and revenue of $1.44 billion that beat the $1.41 billion FactSet estimate.

But North America revenue fell 2% to $1.1 billion. International sales were up 15%, but that represents 24% of total revenue, or $351 million.

“[T]here has been a slowdown in both the athleisure and sports markets, which has affected many retailers and brands,” wrote Neil Saunders, managing director of GlobalData Retail, in a note. Select brands, like Lululemon Athletica Inc.

LULU, +4.60%

 , have defied the trend. But Saunders says “weaker” brands like Under Armour have not.

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“Footwear has been a particular area of challenge and here we believe that Under Armour has lost significant market share to Nike

NKE, +3.21%

 , which has been more innovative and focused with its product strategy,” Saunders wrote.

Footwear revenue was flat at $285 million, Under Armour Chief Financial Officer David Bergman said on the call, according to a FactSet transcript.

CFRA lowered its Under Armour rating to sell from hold, though it raised its 12-month target to $20 from $18.

“While we commend Under Armour’s impressive international sales growth and focus on tightening inventory, which decreased 0.6% to $1.2 billion in Q3, much progress in SKU [storekeeping unit] rationalization and reviving the North America segment remains to be made,” the note said.

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With shares up so much, CFRA analyst Camilla Yanushevsky said Under Armour stock is “overvalued at current levels.”

Other analysts are more bullish. Cowen raised its price target to $21 from $18, writing in a note that they are “confident” on “gross margin and free cash flow outlook into next year.”

And Baird analyst Jonathan Komp is especially optimistic, rating Under Armour stock outperform with a $27 price target and giving the company its Fresh Pick stamp.

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“The results demonstrate Under Armour’s ongoing progress toward becoming a more operationally excellent company,” the note said, with Komp reiterating Baird’s “positive contrarian stance.”

Under Armour shares have rallied 58.6% for the year to date while the S&P 500 index

SPX, +1.57%

  has slipped 0.4% for the period.

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