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Will Under Armour (UA) Q2 Earnings Disappoint Investors?

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Under Armour, Inc. (UA - Free Report) , the developer, marketer and distributor of branded performance apparel, footwear, and accessories, is slated to report second-quarter 2016 results on Jul 26. The big question facing investors is whether the company will be able to deliver a positive earnings surprise in the quarter to be reported.

In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 34.4%. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Under Armour is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as Under Armour’s Earnings ESP is -50.00% as the Most Accurate estimate stands at 1 cent, whereas the Zacks Consensus Estimate is pegged higher at 2 cents.  

Also, Under Armour carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Influencing This Quarter

Under Armour trimmed its 2016 outlook after one of its major customers, The Sports Authority, faced bankruptcy as it has been burdened with more than $1 billion of debt. For the second quarter, Under Armour expects impairment charge of nearly $23 million related to The Sports Authority. Previously, the company had estimated sales of $163 million from the sports retailer for 2016. However, now that it has filed for bankruptcy,

Under Armour is likely to recognize only $43 million of the sales. The company now expects net revenues for 2016 to be nearly $4.925 billion, as against the previous estimate of about $5 billion.

However, Under Armour’s sustained focus on brand development, expansion of its DTC business, product innovation and foray into the technology-based fitness business bode well, as it registered revenue growth of over 20% for the past 24 straight quarters. For the second quarter, the company continues to project revenue growth in the high 20% range.

UNDER ARMOUR-A Price and EPS Surprise

UNDER ARMOUR-A Price and EPS Surprise | UNDER ARMOUR-A Quote

Stocks Poised to Beat on Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Big Lots Inc. (BIG - Free Report) has an Earnings ESP of +4.35% and a Zacks Rank #2.

Expedia Inc. (EXPE - Free Report) has an Earnings ESP of +17.07% and a Zacks Rank #3.

GameStop Corp. (GME - Free Report) has an Earnings ESP of +17.86% and a Zacks Rank #3.

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