U.S. Markets closed

Under Armour (UAA) Stock Soars on Earnings: Here's One Big Problem

Ryan McQueeney

Shares of Under Armour UAA gained as much as 11% in morning trading Thursday after the sports apparel maker posted better-than-expected first-quarter results on both the top and bottom lines.

Under Armour reported a loss of one cent per share, comfortably surpassing the Zacks Consensus Estimate of a loss of four cents. The company’s quarterly revenue of $1.12 billion was up 7% year-over-year and also edged out our consensus estimate of $1.11 billion.

The sports brand, known for its sponsorships of top athletes like Steph Curry and Jordan Spieth, saw a nice 12% gain in its accessories unit, thanks in part to strength in its men’s training, youth, running, and global football segments. Solid performance in the training, golf, and team sports segments helped Under Armour’s apparel division grow by 7%.

“Our first quarter results were in line with our expectations and we're off to a solid start in 2017," said CEO Kevin Plank. "By proactively managing our growth to deliver superior innovative product, continuing to strengthen our connection with consumers and increasing our focus on operational excellence - we have great confidence in our ability to drive toward our full year targets."

Under Armour was a darling stock for much of 2015, but shares have been steadily declining for more than a year and a half as growth in certain key areas has slowed. The company also suffered when Sports Authority—a key retail partner—closed all of its stores last year. Heading into today, shares were down more than 30% year-to-date.

And while investors are clearly rewarding Under Armour for its better-than-expected results, there’s certainly still some cause for concern. In fact, today’s report revealed one glaringly-obvious red flag: footwear sales are weak.

Footwear revenue grew just 2% to $270 million this quarter, which is shocking compared to the unit’s 64% growth in the year-ago quarter. Today’s report cited “significant strength in basketball sales and the timing of liquidations” for last year’s impressive performance, and investors ought to pay close attention to what the company is revealing here.

The significance of Under Armour’s basketball division should not be understated, and its growth last year can be almost directly attributed to Steph Curry’s rise to stardom. A year ago, Curry was on the cusp of winning his second-consecutive MVP award after leading the Golden State Warriors to the best regular-season record in NBA history.

The Warriors would go on to blow a 3-1 lead in the Finals to the Cleveland Cavaliers—led by LeBron James, a Nike (NKE) athlete. Since then, Curry has still played like an All-Star, but his stardom has slipped. The Warriors missed out on a chance to be considered the best team of all time, and Steph Curry would have been the unquestionable face of that team.

In an effort to improve their odds at bringing home the title this year, the Warriors signed former MVP Kevin Durant over the offseason. Sure, Curry is still a star, but it’s tougher to shine bright when another mega-star is right next to you (also read: As Teammates Outshine Steph Curry, Should Under Armour Worry?).

And on top of that, several of Curry’s shoe debuts have been mocked on the internet, as “sneaker heads” were less-than-impressed with Under Armour’s designs.

Last year we were talking about whether Under Armour and Curry would be the next Nike and Jordan, but now were talking about a measly 2% growth in footwear. Under Armour still has plenty of room to grow, but let’s not act like today’s report didn’t include at least one disappointing line.

Zacks’ Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but chosen members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting today, and for the next month, you can follow all Zacks’ private buys and sells in real time. Our experts cover all kinds of trades: value, momentum, ETFs, stocks under $10, stocks that corporate insiders are buying up, and companies that are about to report positive earnings surprises. You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks’ secret trades>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Under Armour, Inc. (UAA): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research