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Why Under Armour Has Revised Its Outlook for 2016

Gabriel Kane

Yesterday's Consumer Pops and Drops: BRFS, UA, TTM, and TM

(Continued from Prior Part)

Price movement of Under Armour

Under Armour (UA) has a market capitalization of $6.9 billion. It fell by 0.50% to close at $37.73 per share on May 31, 2016.

The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.2%, -14.1%, and -6.4%, respectively, as of the same day. This means that UA is trading 2.0% below its 20-day moving average, 8.8% below its 50-day moving average, and 13.0% below its 200-day moving average.

Related ETFs and peers

The Guggenheim S&P 500 Pure Growth ETF (RPG) invests 1.2% of its holdings in Under Armour. The ETF tracks an index of primarily large- and mid-cap stocks with strong growth characteristics. The index selects companies from the S&P 500 Index based on three growth factors. The YTD price movement of RPG was 1.1% as of May 31, 2016.

The market capitalizations of Under Armour’s competitors are as follows:

  • Nike (NKE) — $92.5 billion
  • Skechers USA (SKX) — $4.8 billion
  • Columbia Sportswear Company (COLM) — $3.7 billion

Performance of Under Armour in 1Q16

Under Armour reported 1Q16 net revenue of $1.1 billion, a rise of 30.2% compared to net revenue of $804.9 million in 1Q15. Revenues from its apparel, footwear, accessories, licensing, and connected fitness segments rose by 20.0%, 64.2%, 26.2%, 14.7%, and 119.4%, respectively, in 1Q16 compared to 1Q15.

The company’s cost of goods sold as a percentage of net revenue and income from operations rose by 1.9% and 26.0%, respectively, in 1Q16 compared to 1Q15.

UA’s net income and EPS (earnings per share) rose to $19.2 million and $0.04, respectively, in 1Q16, compared to $11.7 million and $0.03, respectively, in 1Q15.

Under Armour’s cash and cash equivalents and inventories rose by 20.9% and 6.6%, respectively, in 1Q16 compared to 4Q15. Its current ratio fell to 2.9x, and its debt-to-equity ratio rose to 0.85x in 1Q16, compared to a current ratio and debt-to-equity ratio of 3.1x and 0.72, respectively, in 4Q15.

Projections

The company has revised its projections for 2016 and 2Q16:

2016

  • Net revenues: ~$4.9 billion
  • Operating income: ~$440 million–$445 million
  • Interest expense: ~$35 million
  • Effective tax rate: ~38.5%
  • Fully diluted weighted average shares outstanding: ~446 million of the Class C stock dividend

2Q16

  • UA expects an impairment charge of ~$23 million related to the Sports Authority.
  • It expects revenue growth in the high-20% range.
  • It expects operating income of $17 million–$19 million.
  • It expects a tax rate of ~70%.

This projection includes the liquidation of its Sports Authority business.

In the next part, we’ll take a look at Honda Motor Company.

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