What happened
Shares of Under Armour (NYSE: UAA) (NYSE: UA) were falling today as the company received a downgrade from Moody's, the latest sign of trouble at the sports apparel retailer. As of 3:07 p.m. EDT on Thursday, Class A shares (UAA), which hold voting rights, were down 7.9%, while nonvoting Class C shares (UA) were down 10.5%.
Image source: Under Armour.
So what
The ratings agency lowered its corporate family rating on Under Armour from Ba1 to Ba2, putting it further into junk territory, and it gave the company a negative outlook.
Moody's noted Under Armour's "weak operating performance related to the challenges it is facing in reinvigorating growth in its core North American market, and the compounding effects of the unprecedented disruption caused by the rapid global spread of the coronavirus." Moody's also said that extended store closures would hurt its profit margins and cash flow.
Though the ratings agency called the company's liquidity "good," saying it has $788 million in cash on its balance sheet after drawing down $700 million from its credit facility, it warned about the apparel industry in general, noting that it was one of the most affected by the coronavirus due to its sensitivity to consumer demand.
Now what
Moody's isn't really saying anything new here, though the credit agency's critiques deserve to be taken seriously. Under Armour has been struggling for several years as a number of poor decisions and bad p.r. have hammered the stock. Even before the coronavirus outbreak swept the country, the company had already expected sales in North America, its biggest market, to decline for the year. The pandemic only puts the company in a deeper hole and make its hoped-for turnaround even more difficult to execute.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Moody's, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
