Under Armour’s sole bond issue downgraded to junk status

Under Armour stock was subject to a slew of downgrades this week after a disappointing earnings report and news of the departure of finance head Chip Molloy after just one year on the job.

The bad news didn’t end there.

The sports equipment and apparel retailer UA, -0.27%  also had its credit downgraded, sending its sole bond issue into speculative, or “junk” territory.

Standard & Poor’s cut its rating on the issuer to BB-plus from BBB-minus, the last level of investment grade. The outlook on the rating is negative, meaning S&P could lower it again in the medium term.

Under Armour Enters High-End Fashion Space

Under Armour, best known for performance sports gear, is rolling out a collection of high-end clothing including jackets, trousers and trench coats. The company aims to reach what it calls ‘ambitious millennials.’ WSJ’s Sara Germano explains on Lunch Break With Tanya Rivero. Photo: Caitlin Ochs for The Wall Street Journal

The rating agency said increased competition, pricing pressures, a weak retail environment, weak operational execution by the company and higher costs to support growth were behind the action.

“We now believe the company will generate about 10 percent sales growth annually and margins will be in the 12 percent range, which results in leverage slightly below 3 [times],” said S&P analyst Mariola Borysiak.

Read: Under Armour punished as revenue hits a wall

Another ratings agency, Moody’s maintained its Baa2 on Under Armour after the earnings report, but revised its outlook to negative from stable. Baa2 is two notches above junk in Moody’s scale.

Under Armour reported sales of $ 1.31 billion for the quarter, missing the $ 1.41 billion FactSet consensus. Earnings per share of 23 cents were also below the 25-cent FactSet consensus.

Read: Millennial shoe shoppers are clamoring for these fashion staples of the ’60s and ’70s

“In the fourth quarter, slower traffic caused significant promotional activities, earlier, deeper and broader than expected,” Chief Executive Kevin Plank said on the call, according to a FactSet transcript. “This in addition to higher demand for more lifestyle silhouettes caused us to be out of balance with our assortment. So we lost top line volume as we [worked] to adapt through our mix and pricing.”

Read: Under Armour suffers multiple downgrades on fears the ‘growth story’ is ending

Under Armour’s only outstanding bonds, the $ 600 million of 3.250% notes to mature in June of 2026 were last quoted at 91 cents on the dollar, according to MarketAxess.

The stock was flat Friday, but is down 28% in the year to date, while the S&P 500 SPX, -0.21%   is up about 3%.

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