S&P junks Under Armour a day after disappointing earnings

Intense competition, a weak retail environment and pricing pressures in the key North American market have prompted S&P to downgrade Under Armour’s credit rating to junk a day after its shares slumped on disappointing quarterly results.

S&P analysts said Wednesday that they were cutting the athletic clothing maker’s rating one notch from BBB- to BB+, pushing it below the line separating investment grade from junk. The ratings agency said its outlook for the company was negative.

Credit analyst Mariola Borysiak said:

“The company recently reported a weaker-than-expected operating performance during its important fourth quarter. This was attributable to weaker-than-expected execution on the company’s growth plan, increasing competition and a poor retail environment in North America, leading to price pressure as well as rising costs to support growth that erode margins and profitability. We believe Under Armour’s weak operating execution under its aggressive growth strategy weigh on our assessment on its business risk profile.”

Yesterday, Under Armour shares plunged by as much 28 per cent on Tuesday after it revealed results from the critical holiday shopping season that badly missed analysts’ expectations. The company’s shares are largely flat since the start of trading Wednesday.

Another ratings agency, Moody’s, on Wednesday affirmed its Baa2 rating for Under Armour – keeping it two notches above junk – while changing its outlook from stable to negative, owing to “weaker-than-expected fourth quarter 2016 operating performance and significant downward revision in guidance for 2017,” according to Moody’s analyst Mike Zuccaro.