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Under Armour Strategic Efforts Bode Well, Margin Woes Linger
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Under Armour, Inc.’s (UAA - Free Report) sustained focus on brand development, expansion of direct-to-consumer business, product innovation and foray in to the technology-based fitness business bode well. However, conservative sales guidance for fiscal 2017, currency headwinds and margin pressure remain matters of concern for investors. Let’s delve deeper and find out more about the stock’s state of affairs.
Hidden catalyst
Under Armour continues to seek opportunities for increasing global footprint and market share. Though the company generates a major portion of its revenues from the North America region, it intends to expand business operations to other parts of the world, in order to mitigate the risks stemming from concentration in one geographic region. In sync with this strategy, the company has opened factory and brand stores in Canada and China over the years as well as given franchise licenses in several other countries.
Further, it has rolled out e-commerce platforms in countries like Mexico, Australia, New Zealand and Chile. Another major tool used by Under Armour to broaden its base is the development of an International e-commerce team. In second-quarter 2017, international business surged 57% to $235 million.
Previously, management had announced a restructuring plan in order to utilize financial resources more efficiently. This will better cater to evolving demands of the changing consumer environment. Taking this into consideration, Under Armour anticipates incurring total estimated pre-tax restructuring and related charges of roughly $110-$130 million in the fiscal 2017.
Under Armour, which share space with NIKE, Inc. (NKE - Free Report) , PVH Corp. (PVH - Free Report) and G-III Apparel Group, Ltd. (GIII - Free Report) has been trying to boost its DTC business through store expansion initiatives and enhancement of e-commerce platform for the past few years. This strategy has enhanced DTC’s contribution to total revenues, which has advanced 25% in 2016 from 6% in 2005. In second-quarter 2017, the company’s revenues increased 20% to $386 million and its contribution to total revenues rose to 35%.
Hurdles to Cross
Meanwhile, despite top and bottom line beat in second-quarter 2017, investors were hurt due to conservative sales guidance. It anticipates net revenues for 2017 to rise in the range of 9-11%, down from the prior estimate of an increase of 11-12% over the 2016 level primarily due to moderation in North American business. Further, the company expects adjusted earnings per share in the range of 37-40 cents, which was lower than the analysts’ expectations.
Gross margin, an important financial metric, which gives an indication about the company’s health has shown constant deceleration in the past three quarters. In second-quarter 2017, gross margin contracted 190 basis points to 45.8% following a decline of 70 basis points in the first quarter. In the second quarter, gross margin shriveled owing to aggressive inventory management, foreign currency headwinds, and rise in air freight related to the company’s enterprise resource planning (ERP) system implementation, which overshadowed the benefits from channel and product mix.
We noted that, in the first, second, third and fourth quarters of 2016, gross margin have decreased 100, 70, 130 and 320 basis points to 45.9%, 47.7%, 47.5% and 44.8%, respectively. The company anticipates adjusted gross margin to decline by a minimum of 120 basis points, in comparison with 46.4% reported in 2016 due to foreign currency headwinds, restructuring plan and efforts toward managing inventory.
4 Promising Stock Picks to Keep an Eye On
With news stories about computer hacking and identity theft becoming increasingly commonplace, the cybersecurity industry looks like a promising investment opportunity. But which stocks should you buy? Zacks just released Cybersecurity: An Investor’s Guide to Locking Down Profits to help answer this question.
This new Special Report gives you the information you need to make well-informed investment choices in this space. More importantly, it also highlights 4 cybersecurity picks with strong profit potential.
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Under Armour Strategic Efforts Bode Well, Margin Woes Linger
Under Armour, Inc.’s (UAA - Free Report) sustained focus on brand development, expansion of direct-to-consumer business, product innovation and foray in to the technology-based fitness business bode well. However, conservative sales guidance for fiscal 2017, currency headwinds and margin pressure remain matters of concern for investors. Let’s delve deeper and find out more about the stock’s state of affairs.
Hidden catalyst
Under Armour continues to seek opportunities for increasing global footprint and market share. Though the company generates a major portion of its revenues from the North America region, it intends to expand business operations to other parts of the world, in order to mitigate the risks stemming from concentration in one geographic region. In sync with this strategy, the company has opened factory and brand stores in Canada and China over the years as well as given franchise licenses in several other countries.
Further, it has rolled out e-commerce platforms in countries like Mexico, Australia, New Zealand and Chile. Another major tool used by Under Armour to broaden its base is the development of an International e-commerce team. In second-quarter 2017, international business surged 57% to $235 million.
Previously, management had announced a restructuring plan in order to utilize financial resources more efficiently. This will better cater to evolving demands of the changing consumer environment. Taking this into consideration, Under Armour anticipates incurring total estimated pre-tax restructuring and related charges of roughly $110-$130 million in the fiscal 2017.
Under Armour, which share space with NIKE, Inc. (NKE - Free Report) , PVH Corp. (PVH - Free Report) and G-III Apparel Group, Ltd. (GIII - Free Report) has been trying to boost its DTC business through store expansion initiatives and enhancement of e-commerce platform for the past few years. This strategy has enhanced DTC’s contribution to total revenues, which has advanced 25% in 2016 from 6% in 2005. In second-quarter 2017, the company’s revenues increased 20% to $386 million and its contribution to total revenues rose to 35%.
Hurdles to Cross
Meanwhile, despite top and bottom line beat in second-quarter 2017, investors were hurt due to conservative sales guidance. It anticipates net revenues for 2017 to rise in the range of 9-11%, down from the prior estimate of an increase of 11-12% over the 2016 level primarily due to moderation in North American business. Further, the company expects adjusted earnings per share in the range of 37-40 cents, which was lower than the analysts’ expectations.
Gross margin, an important financial metric, which gives an indication about the company’s health has shown constant deceleration in the past three quarters. In second-quarter 2017, gross margin contracted 190 basis points to 45.8% following a decline of 70 basis points in the first quarter. In the second quarter, gross margin shriveled owing to aggressive inventory management, foreign currency headwinds, and rise in air freight related to the company’s enterprise resource planning (ERP) system implementation, which overshadowed the benefits from channel and product mix.
We noted that, in the first, second, third and fourth quarters of 2016, gross margin have decreased 100, 70, 130 and 320 basis points to 45.9%, 47.7%, 47.5% and 44.8%, respectively. The company anticipates adjusted gross margin to decline by a minimum of 120 basis points, in comparison with 46.4% reported in 2016 due to foreign currency headwinds, restructuring plan and efforts toward managing inventory.
4 Promising Stock Picks to Keep an Eye On
With news stories about computer hacking and identity theft becoming increasingly commonplace, the cybersecurity industry looks like a promising investment opportunity. But which stocks should you buy? Zacks just released Cybersecurity: An Investor’s Guide to Locking Down Profits to help answer this question.
This new Special Report gives you the information you need to make well-informed investment choices in this space. More importantly, it also highlights 4 cybersecurity picks with strong profit potential.
Get the new Investing Guide now>>