In May, Moody’s had upgraded its financial outlook for Under Armour from negative to positive and improved other metrics, considering that its turnaround had been successful.
This time, it upgraded its debt ratings further following better-than-expected recent increases in sales and earnings. Moody’s again praised Under Armour for the significant action it has taken to improve overall brand health and profitability in North America. It feels that its much stronger balance sheet, due to strong cash generation and debt cuts, will allow Under Armour to weather the lingering effects of the Covid pandemic, including the disruption of the supply chain.
Moody’s pointed to the company’s very good liquidity, supported by $1.25 billion of unrestricted cash on its balance sheet as of September 2021, full availability under its unrated $1.1 billion revolver, positive free cash flow, and ample covenant headroom.
Moody’s is also considering that its own positive view of the global sports apparel market “provides credible longer-term organic growth opportunities, particularly in international markets where the company is significantly underpenetrated.” Another constaint, it indicated, is its reliance on a single brand.
“While operating margins have significantly improved over the past year, they remain weak relative to other similarly rated apparel peers, and it will take additional time to prove that turnaround efforts will have a sustained positive effect,” Moody’s also said.
