Under Armour's launch at Kohl's was supposed to be its saving grace - but it's looking like a disaster

Kohl's partnership with Under Armour seems not to be working out the way it was intended.

When Kohl's announced that Under Armour products were coming to its more than 1,100 stores nationwide on March 1, it seemed like the perfect fusion of two brands coming together to provide what the other was lacking.

Though Kohl's already sells products by Nike and Adidas, it was looking for more activewear brands to sell. The category is a bright spot for the retailer, who found that consumers are willing to pay a little more for it.

Under Armour, on the other hand, was looking for more shelf space in stores where women shopped — and more shelf space in general following the liquidation of Sports Authority.

Kohl's is particularly popular with middle-class suburban mothers. The match looked to be in the stars.

"Kohl's is a great evolution for us — we think that the female consumer [is] there, she's shopping, and she's buying," Plank said in an earnings call last year. "We believe that there's a massive opportunity with the consumer that's walking into those stores and looking for the Under Armour brand and, frankly, they haven't been able to find it."

But matches that look good on paper don't always turn out well in practice. Kohl's is known for another thing: constant, deep discounting. According to a new UBS research note on the stock, there are "signs that the Kohl's launch caused increased markdowns across the channel" for Under Armour — not exactly the intended outcome of the partnership. Markdowns can spell doom for a company's bottom line.

That's especially true if it's not immediately clear to consumers why the brand is more expensive at one store versus another. Susquehanna Financial analyst Sam Poser forecasted these concerns in March.

"Kohl's Under Armour assortment is presented well but may not be appropriately segmented," Poser wrote. "Within men's and women's apparel, 50 percent (maybe a bit more) of the styles are also available at Dick's [Sporting Goods]."

Poser is worried that Dick's buyers will see the steep discounting at Kohl's and stop stocking Under Armour altogether.

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Under Armour doesn't sell its entire line at Kohl's, reserving its most expensive items for its own retail stores. Instead, it brought back some of its older shoe models and its basic sportswear in new and exclusive colors to sell at the department store, according to Citi Research analyst Kate McShane.

McShane says that Under Armour is attempting to copy Nike's strategy of segmented offerings from outlet to premium, but that "will require an expanded assortment and increased emphasis on price point planning than UA has historically offered."

Poser also notes that selling in a store loved by middle-class suburban mothers isn't going to help make Under Armour cool again.

"Selling Kohl's does little to enhance the Under Armour brand, especially when there's the need to build a lifestyle business," Poser wrote.

This is bad news for Under Armour, which, after posting disappointing quarterly results last quarter, is expecting to post its first operating loss ever this quarter.

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