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Under Armour (UAA) Beats on Q1 Earnings & Sales, Lifts View

Zacks Equity Research

Under Armour, Inc.’s UAA first-quarter 2019 earnings and revenues improved year over year and also came ahead of the Zacks Consensus Estimate. In fact, the first quarter marked the company’s sixth and third straight quarter of top and bottom-line beat, respectively. The athletic apparel maker also raised its 2019 earnings view. The results were driven by sturdy performance across Asia-Pacific, EMEA and Latin America regions that helped offset dismal performance in North America.

The impressive quarterly results and an encouraging view seem to have raised investors’ confidence. Notably, shares of the company are up roughly 9%, during the pre-market trading hours. Further, this Zacks Rank #3 (Hold) stock has rallied 24.8% so far in the year compared with the industry’s growth of 28.5%.

Let’s Delve Deep

Under Armour’s quarterly earnings came in at 5 cents a share. The Zacks Consensus Estimate for the quarter under review was of breakeven. The company had reported loss per share of 7 cents in the year-ago period. On an adjusted basis, the company had reported break-even results in the prior-year quarter. The year-over-year upside can be attributed to higher revenues, improved gross margin, fall in SG&A expenses and lower interest expense.

Net revenues rose 1.6% (or up 3.1% on a currency neutral basis) to nearly $1,204.7 million, which surpassed the Zacks Consensus Estimate of $1,184.5 million. We note that while wholesale revenue jumped 5% to $818 million, direct-to-consumer revenue fell 6% to $331 million.

Under Armour, Inc. Price, Consensus and EPS Surprise

 

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

Apparel revenue inched up 0.7% year over year to $774.6 million, while Footwear revenue increased 7.6% to $292.5 million. However, revenue from accessories category declined 11% to $82 million due to planned reduced sales of backpacks and bags associated to a strategic relaunch of key product. Meanwhile, Licensing revenue plunged 17.8% to $21.7 million, whereas the company’s Connected Fitness segment reported an increase of 4.4% to $30.1 million.

Net revenues from North America fell 2.8% (down 2.4% on a currency neutral basis) to $843.2 million. Remarkably, international business continued to witness sturdy growth, rising 12.3% (up 17.2% on a currency-neutral basis). Within international business, net revenues from EMEA and Asia-Pacific regions grew 3.5% and 24.9% to $134.1 million and $144.3 million, respectively, while Latin America revenues increased 5.7% to $49.2 million.

The company’s gross margin expanded 100 bps to 45.2%, courtesy of improved regional mix and lower product costs. SG&A expenses fell 1% to $509.5 million, while, as a percentage of net revenues, the same contracted 110 bps to 42.3%. Net interest expense fell sharply about 50.5% to $4.2 million.

Other Financial Details

Under Armour ended the quarter with cash and cash equivalents of $288.7 million, long-term debt (net of current maturities) of $590.4 million and total shareholders' equity of $2,049.8 million. While cash and cash equivalents increased 2%, total debt was down about 36%. Additionally, management expects to incur capital expenditures of approximately $210 million in 2019.

Guidance

Management continues to envision 2019 net revenues increase of 3-4%. Revenues from North America are likely to remain flat. The company projects international revenues to increase in low-double digit percentage rate. The company now forecast earnings per share in the band of 33-34 cents a share versus the prior projection of 31-33 cents. The current Zacks Consensus Estimate for the full year is pegged at 34 cents.

Under Armour now expects gross margin to improve 70-90 bps from the 2018 adjusted figure. The expansion is likely to be backed by favorable channel mix and supply-chain efforts. The company had earlier projected gross margin improvement of 60-80 bps

Operating income is now anticipated to be around $220-$230 million compared with the earlier guided range of $210-$230 million. The company projects net interest and other expenses of $35 million.

3 Stocks Catching the Eyes

Columbia Sportswear COLM has a long-term earnings growth rate of 8.9% and flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Ralph Lauren RL delivered average positive earnings surprise of 6.9% in the trailing four quarters. It carries a Zacks Rank #2 (Buy).

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