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Under Armour's North America problem hasn't gone away

Shoppers pass an Under Armour store in White Plains, New York.

Scott Mlyn | CNBC

Under Armour still has a North America problem.

The athletic apparel retailer's mixed earnings results on Tuesday called attention to the fact that the brand continues to struggle to win over shoppers on its home turf. North American sales are expected to be down slightly in 2019, rather than flat as its prior forecast projected.

During the fiscal second quarter, sales in North America dropped 3.2%, reflecting weakness in Under Armour's direct-to-consumer business, management said during a conference call. Traffic during the quarter was "slower" at its stores in North America — about 90% of which are at outlet centers, selling discounted goods, the company said. Conversion rates were up, meaning once people came inside a store, they were more likely to make a purchase.

Chief Operating Officer Patrik Frisk described Under Armour's business in North America as "a bit of a mixed bag with challenges to work through and pockets of strength to build on."

"I think we're kind of bullish on the North American consumer in terms of that being a stable picture for the back half of the year," he added.

But what the company faces, as it hopes to take share from rivals Nike, Adidas, Lululemon and others back in the U.S., is a cycle where fashionable athletic apparel is in style — bright-colored and patterned sweatsuits, tops and sports bras are flying off shelves. And that trend doesn't appear to be slowing down anytime soon. Under Armour's plans to double down on its e-commerce business and get in front of consumers with more targeted marketing might not provide an easy fix.

Nike is doing collaborations with designer icon Virgil Abloh. Adidas has singer Beyonce designing shoes and clothes. Puma has movie star Selena Gomez wearing its brand and posting about it on her Instagram account. Lululemon is teaming up with fitness studios like Barry's Bootcamp, making its leggings a staple in many women's closets today.

But Under Armour's sweat-wicking performance gear, while effective for athletes, isn't something shoppers are picking up to wear running errands or hitting a SoulCycle class. And while the company says it plans to stay true to its performance roots, that strategy could end up hurting it in the long run.

Under Armour's share of the activewear market in the U.S. has shrunk to 5.6% from 6.4% through June of this year compared with the same time-frame a year ago, according to The NPD Group's tracking service. In sport footwear, Under Armour's share of the market has dropped to 2.7% from 3.2%, NPD Group analyst Matt Powell said.

The company is going to have a hard time winning any market share in the U.S. at a time when shoppers are still in a strong "athleisure" cycle, Powell said. "Brands that are focused on gym-wear over street-wear will find growth challenging."

Under Armour says that as it pulls more merchandise out of off-price channels and sells more at full price, its business in North America should stabilize further. It's told analysts it plans to open more standalone Under Armour stores in the U.S. — a strategy that it hopes will help boost its direct-to-consumer segment.

CEO Kevin Plank said on Tuesday that more product innovation is underway and that Under Armour is going to be a "louder" brand moving forward.

Still, if the company doesn't make enough new products with wider appeal, it might never reach as big of an audience as Nike and Adidas.

"The lowered 2019 [North America] forecast ... reflects the brand's challenges in attracting customers amid strong competition from Nike and Adidas, as well as smaller brands like Fila and Puma that have been gaining share," Telsey Advisory Group analyst Cristina Fernandez said. "Our recent review of Google Trends showed good reception to new [Under Armour] products like HOVR and Project Rock, but continued softness for the Under Armour brand as a whole."

Under Armour shares were down more than 13% Tuesday morning, having climbed more than 30% year to date.

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