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Under Armour (UA) Q2 Loss Lower than Expected, Sales View Cut

Zacks Equity Research

Under Armour, Inc. UAA reported narrower-than-expected loss for second-quarter 2017. The company reported loss per share of 3 cent that fared better than the Zacks Consensus estimate of a loss of 6 cents.

Following the results, the company’s shares are down nearly 4% during pre-market trading session primary due to trimmed 2017 sales guidance. Moreover, the company’s shares have declined 4.9% in the past three months, compared with the industry’s gain of 7.3%.

Aided by continued strong performance of the Apparel and Accessories categories, total revenue came in at $1,088.2 million, advancing 8.7% year over year. Moreover, the company’s top-line also surpassed the Zacks Consensus Estimate of $1,075 million. Notably, this is the third time in the last 29 quarters that it has reported revenue growth of less than 20%.

The company, which competes with giants such as Adidas AG ADDYY and NIKE, Inc. NKE in the sports apparel business, is keen on expanding footprint and enhancing brand recognition to get an edge, and the deal with rising athletes provides it the suitable platform to showcase its brands.

Restructuring Plan

Management has announced a restructuring plan in order to organize financial resources more efficiently. This will better cater to the evolving needs demands of the changing consumer environment. In sync with this, Under Armour anticipates to incur total estimated pre-tax restructuring and related charges of roughly $110–130 million in the fiscal 2017.

Quarterly Results in Detail

Under Armour’s largest product category, Apparel and Accessories, once again reported strong sales. Apparel sales jumped 11.1% to $680.7 million, while Footwear net revenue decreased 2.4% to $236.9 million during the quarter. Net revenue in the Accessories category climbed 21.7% to $122.6 million, while Licensing revenue rose 19.5% year over year to $25.1 million. Meanwhile, the company’s Connected Fitness segment reported year-over-year decline of 2.2% to $23 million.

North America net revenue inched up 0.3% to $829.8 million, while net revenue from EMEA, Asia-pacific and Latin America jumped 57%, 88.8% and 10.4% to $103.9 million, $93.6 million and $38 million, respectively.

Gross profit was up 4.3% to $498.2 million. However, gross margin contracted 190 basis points to 45.8% owing to aggressive inventory management, foreign currency headwinds, rise in air freight related to the company’s enterprise resource planning (ERP) system implementation, which overshadowed the benefits from channel and product mix.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $165.7 million, up 37% from the prior-year period, while total long term debt was $804.7 million compared with $865.1 million in the prior-year period. Shareholders' equity at the end of the quarter was $2,023.8 million.

Under Armour, Inc. Price, Consensus and EPS Surprise


Under Armour, Inc. Price, Consensus and EPS Surprise | Under Armour, Inc. Quote

2017 Guidance

Management trimmed 2017 revenues guidance. The company now expects net revenue for 2017 to rise in the range of 9–11%, down from the prior estimate of an increase of 11–12% over the 2016 level primarily due to moderation in North American business.

The company anticipates adjusted gross margin to decline by minimum of 120 basis points, in comparison with 46.4% reported in 2016 due to foreign currency headwinds, restructuring plan and its efforts toward managing inventory. Adjusted operating income is expected to be nearly $280–$300 million. The company projects interest expense of about $40 million and effective tax rate of 31–32%. The company anticipates adjusted earnings per share in the range of 37–40 cents. The Zacks Consensus estimate for 2017 is currently pegged at 42 cents, which could witness downward revisions in the coming days.

Zacks Rank & Stock to Consider

Under Armour currently carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering includes G-III Apparel Group, Ltd. GIII, which sports a Zacks Rank #1 (Strong Buy). G-III Apparel Group has an impressive long-term earnings growth rate of 17.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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