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Under Armour (UA) Stock Up on Narrower-than-Expected Q1 Loss

Zacks Equity Research

Under Armour, Inc. UAA reported narrower-than-expected loss for first-quarter 2017. The company reported loss per share of 1 cent that fared better than the Zacks Consensus estimate of loss of 4 cents. In the prior-year quarter, the company had reported earnings per share of 4 cents.

Aided by continued strong performance of the Apparel, Footwear and Accessories categories, total revenue came in at $1,117.3 million, advancing 6.6% year over year. Moreover, the company’s top-line also surpassed the Zacks Consensus Estimate of $1,106 million after missing the same in the preceding quarter. Notably, this is the second time in the last 28 quarters that the company’s has reported revenue growth of less than 20%.

Following the results, the company’s shares are up nearly 3% during pre-market trading session. However, in the past three months the company’s shares have plunged 31.9%, wider than the Zacks categorized Textile-Apparel Manufacturing industry’s decline of 5.4%.

The company, which competes with giants such as Adidas and Nike, Inc. 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.

Under Armour’s largest product category, Apparel, once again reported strong sales. Apparel sales jumped 7.3% to $715.4 million driven by growth in golf, training and team sports, while Footwear net revenue increased 2% to $269.7 million during the quarter, driven by growth in basketball sales. Net revenue in the Accessories category climbed 11.8% to $89.1 million, backed by growth in men's training, running, youth as well as global football, while Licensing revenue rose 24.6% year over year to $24.2 million.

The company’s Connected Fitness segment reported year-over-year growth of 2.3% to $18.9 million. This was driven by the acquisitions of Endomondo and MyFitnessPal. These buyouts, along with existing MapMyFitness and UA RECORD suite of applications, aided the company to form one of the largest digital health and fitness communities.

Under Armour recorded a 4% increase in wholesale net revenue to $773 million and a 13% increase in Direct-to-Consumer net revenue to $302 million. North America net revenue dipped 1%, while international net revenue, which represented 20% of total net revenue, increased 52% or 57% on a currency neutral basis.

Gross profit was up 5.2% to $505.4 million. However, gross margin contracted 70 basis points to 45.2% owing to aggressive inventory management which overshadowed the benefits from channel and product mix.

Under Armour, Inc. Price, Consensus and EPS Surprise


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

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $172.1 million, up 10% from the prior-year period, while long term debt was $811.1 million compared with $817.4 million in the prior-year period. Shareholders' equity at the end of the quarter was $2,020 million.

2017 Guidance

Management retreated 2017 guidance. The company continues to expect net revenue for 2017 to be nearly $5.4 billion. This represents an increase of 11–12% over the 2016 level. The company anticipates gross margin be down slightly year over year owing to foreign currency headwinds and better performance of footwear as well as international businesses in the overall mix, which has lesser margins in comparison with apparel and North American businesses. Due to increase in strategic investments Under Armour expects operating income to decline to nearly $320 million.

The company projects interest expense of about $40 million and effective tax rate of 32–34%.

Zacks Rank & Stocks to Consider

Under Armour currently carries a Zacks Rank #3 (Hold). Better-ranked stocks worth considering include Big 5 Sporting Goods Corporation BGFV, The Children's Place, Inc. PLCE and MICHAELS COMPANIES, INC. MIK. Big 5 Sporting Goods and The Children's Place sport a Zacks Rank #1 (Strong Buy) while MICHAELS COMPANIES carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting Goods has long-term earnings growth rate of 12%.

Children's Place has reported earnings beat in the trailing four quarters, with an average of 39% and also the company has long-term earnings growth rate of 8%.

MICHAELS COMPANIES an impressive long-term earnings growth rate of 16%.

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