Under Armour credit rating cut to junk by S&P amid slowdown

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Under Armour Inc., the former highflier that’s reeling from a sales slowdown, had its credit rating cut to junk status by S&P Global Ratings, which cited heavy competition and pressure on prices.

The firm lowered Under Armour’s corporate credit grade and the rating on its $600 million of notes to BB+ from BBB-, putting it one notch below investment grade, according to a report Wednesday. It has a negative outlook on the corporate rating.

S&P pointed to concerns that sales will slow over the next two years and that “margins will weaken due to intense competition in North America, a shift in growth toward less-profitable international markets and the athletic footwear segment.” The brand’s expansion plans, which include a big push overseas, also are driving up costs, the ratings firm said.

The junk rating deals a blow to a company that sold the notes last June in an inaugural deal. The bonds plunged 4.2 cents on the dollar to 88.1 cents at 11:08 a.m in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the biggest drop since they were issued.

The downgrade comes a day after the sports-apparel maker drastically cut its annual sales forecast amid slowing growth, causing its stock to plummet. Chief Executive Officer Kevin Plank went as far as to say the company’s offerings weren’t fashionable enough to win over shoppers.

Citi is maintaining a “buy” rating on Under Armour despite Tuesday’s earnings miss. The firm noted that the brand still has momentum with a 6 percent increase in its North America business and promising sales overseas. That said, Citi dropped Under Armour’s price target to $25 from $38 and said the brand’s management has work to do, reported Seeking Alpha, an investment research platform.

Citi’s top picks in the apparel/footwear space are Nike and Foot Locker.

Under Armour shares plunged 23 percent to $19.22 on Tuesday and an additional 0.7 percent on Wednesday. The stock had been little changed this year before the rout.

The Baltimore-based company also jarred investors by announcing the departure of Chief Financial Officer Chip Molloy for personal reasons. Molloy only joined the company a year ago.

Daily Record business reporter Anamika Roy contributed to this article.