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Under Armour (UAA) Up 24% in 6 Months: What's Driving It?

Zacks Equity Research

Under Armour, Inc. UAA is gaining from its focus on brand development as well as expansion of direct-to-consumer (DTC) and technology-based fitness businesses. Furthermore, apart from bolstering e-commerce platforms, the company continues to look for opportunities to expand its global footprint.

Backed by these tailwinds, shares of this Baltimore, Maryland based company have increased approximately 24% in the past six months compared with the industry’s growth of 16.1%.


 

Let’s take a closer look at the aspects driving the company’s performance.

Factors Driving the Stock

With rising health consciousness, sports apparel makers like Under Armour are entering into the business of fitness gadgets and other tracking platforms to attract more customers. The acquisition of MapMyFitness, Endomondo and MyFitnessPal are in tune with the company’s strategy of expanding its reach in the fitness space. Also, management is impressed with the popularity of UA HOVR. The company is now banking on three platforms — HOVR, Charge, and Micro G — to boost growth.

Under Armour is poised to increase its global footprint and market share via store expansion initiatives, and enhancement of the e-commerce platform. In the process, it opened factory and brand stores in Canada, and China along with providing franchise licenses in many nations. To harness benefits from growth areas, it intends to consistently invest in international, women's and footwear businesses.

Management expects the digital platform to boost performance and plans to enhance digital engagement. Also, this Zacks Rank #3 (Hold) stock is progressing well with its multi-year transformation plan, which entails effective innovations and strict go-to-market processes, amongst other initiatives.

Apart from these, the company is expanding its DTC business in the U.K., Germany and the Netherlands. Further, it rolled out e-commerce platforms in countries like Mexico, Australia, New Zealand and Chile. Management expects DTC business to be up at a mid-single digit rate in 2019.

Based on such robust growth plans, the company expects the top line to increase in a low-double-digit rate in 2023. Earnings per share are expected to advance 40% on a five-year compounded annual growth rate basis. Moreover, management envisions net revenues to increase 3-4% in 2019.  Wholesale revenues are likely to be up at a low single-digit rate.

Under Armour anticipates gross margin to improve 60-80 bps. The expansion is expected to be backed by favourable channel mix, stemming from reduced planned sales to off-price networks and increased proportion of direct-to-consumer sales.

Bottom Line

Soft sales in North America have been a major concern for the company. Net revenues from North America fell 5.8% during the final quarter of 2018 due to contraction in wholesale business and reduced sales to off-price channel. Management projects mid-single-digit decline in revenues from the North America region during the first quarter of 2019. Change in business model in Latin America is also likely to hurt revenues.

Nevertheless, we expect the aforementioned upsides to address the challenges and help the company sustain growth momentum.

3 Stocks to Watch

G-III Apparel Group, Ltd. GIII outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren Corp. RL has a long-term earnings growth rate of 10.3% and a Zacks Rank #1.

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