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Under Armour Up 37% in a Year, Expansion Efforts Bode Well
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Under Armour, Inc. (UAA - Free Report) appears to be a solid bet, given the company’s efforts to remain on growth trajectory. It undertook impressive store expansion initiatives and e-commerce enhancement endeavors to boost the DTC business. Further, Under Armour’s sustained focus on brand development, product innovation and foray into technology-based fitness businesses bode well.
Driven by these upsides, shares of this Baltimore, MD-based company have increased approximately 37% in a year compared with the industry’s growth of 7.5%.
All said, let’s delve deeper into the factors, which have been driving this Zacks Rank #2 (Buy) stock.
Factors Driving the Stock
With rising consciousness for health and wellness, sports apparel makers are entering the business of fitness gadgets and other tracking platforms to attract customers. The acquisitions of MapMyFitness, Endomondo and MyFitnessPal are in tune with the company’s strategy of expanding its reach in the fitness space. Further, management is impressed with the popularity of UA HOVR. The company is now banking on three platforms — HOVR, Charge and Micro G — to boost growth.
Under Armour is poised to increase its global footprint and market share via store expansion initiatives, and enhancement of the e-commerce platform. The company intends to expand business operations to other parts of the world. In the process, it opened factory and brand stores in Canada, and China along with providing franchise licenses in many nations.
Moreover, the company is expanding its direct-to-consumer (DTC) business in the U.K., Germany and the Netherlands. Further, it rolled out e-commerce platforms in countries like Mexico, Australia, New Zealand and Chile. Remarkably, its international business (which represents 24.3% of total revenues) continued to witness sturdy growth, surging 15.1% (up 16.7% on a currency-neutral basis) during the third quarter of 2018.
Apart from these, the company is well on track with its 2018 restructuring plan to utilize financial resources more efficiently. In this regard, it announced plans to reduce 3% of its global workforce. This move, which is likely to impact the jobs of 400 employees, is expected to be concluded by March 2019. This will enable the company to simplify its organizational structure, attain cost effectiveness and operational efficiencies as well as allocate resources in prospective business opportunities.
Further, to harness benefits from growth areas, it intends to consistently invest in international, women's and footwear businesses. Management expects the digital platform to boost performance and plans to enhance digital engagement. Based on such plans, the company expects the top line to increase in a low-double-digit rate in 2023. Furthermore, earnings per share are expected to advance 40% on a five-year compounded annual growth rate basis.
Encouraging View
Under Armour revised outlook for 2018 and provided initial projections for 2019. For 2018, adjusted gross margin is expected to improve between 20 basis points (bps) and 30 bps. Further, the company estimates adjusted operating income of $160-$165 million compared with $150-$165 million mentioned earlier. Management also raised the lower end of the bottom-line view for 2018. It now expects adjusted earnings of 21-22 cents per share compared with 19-22 cents stated previously.
For 2019, the company anticipates gross margin to rise 60-80 bps, backed by channel mix gains, increased direct-to-consumer sales and favorable product costs. Additionally, operating income is expected to be $210-$230 million while earnings are anticipated to be 31-33 cents. For the international business, the company predicts a low-double-digit percentage increase in 2019. Considering these aspects, revenues are expected to rise 3-4%.
We expect all the aforementioned factors to continue bolstering the company’s performance and help it remain in investors’ good books.
Other Key Picks
Some other top-ranked stocks in the same industry are G-III Apparel Group, Ltd. (GIII - Free Report) , Crocs, Inc. (CROX - Free Report) and Lululemon Athletica Inc. (LULU - Free Report) .
G-III Apparel outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs has a long-term earnings growth rate of 15% and a Zacks Rank #1.
Lululemon delivered average positive earnings surprise of 19.5% in the trailing four quarters. It currently carries a Zacks Rank #2.
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Under Armour Up 37% in a Year, Expansion Efforts Bode Well
Under Armour, Inc. (UAA - Free Report) appears to be a solid bet, given the company’s efforts to remain on growth trajectory. It undertook impressive store expansion initiatives and e-commerce enhancement endeavors to boost the DTC business. Further, Under Armour’s sustained focus on brand development, product innovation and foray into technology-based fitness businesses bode well.
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Driven by these upsides, shares of this Baltimore, MD-based company have increased approximately 37% in a year compared with the industry’s growth of 7.5%.
All said, let’s delve deeper into the factors, which have been driving this Zacks Rank #2 (Buy) stock.
Factors Driving the Stock
With rising consciousness for health and wellness, sports apparel makers are entering the business of fitness gadgets and other tracking platforms to attract customers. The acquisitions of MapMyFitness, Endomondo and MyFitnessPal are in tune with the company’s strategy of expanding its reach in the fitness space. Further, management is impressed with the popularity of UA HOVR. The company is now banking on three platforms — HOVR, Charge and Micro G — to boost growth.
Under Armour is poised to increase its global footprint and market share via store expansion initiatives, and enhancement of the e-commerce platform. The company intends to expand business operations to other parts of the world. In the process, it opened factory and brand stores in Canada, and China along with providing franchise licenses in many nations.
Moreover, the company is expanding its direct-to-consumer (DTC) business in the U.K., Germany and the Netherlands. Further, it rolled out e-commerce platforms in countries like Mexico, Australia, New Zealand and Chile. Remarkably, its international business (which represents 24.3% of total revenues) continued to witness sturdy growth, surging 15.1% (up 16.7% on a currency-neutral basis) during the third quarter of 2018.
Apart from these, the company is well on track with its 2018 restructuring plan to utilize financial resources more efficiently. In this regard, it announced plans to reduce 3% of its global workforce. This move, which is likely to impact the jobs of 400 employees, is expected to be concluded by March 2019. This will enable the company to simplify its organizational structure, attain cost effectiveness and operational efficiencies as well as allocate resources in prospective business opportunities.
Further, to harness benefits from growth areas, it intends to consistently invest in international, women's and footwear businesses. Management expects the digital platform to boost performance and plans to enhance digital engagement. Based on such plans, the company expects the top line to increase in a low-double-digit rate in 2023. Furthermore, earnings per share are expected to advance 40% on a five-year compounded annual growth rate basis.
Encouraging View
Under Armour revised outlook for 2018 and provided initial projections for 2019. For 2018, adjusted gross margin is expected to improve between 20 basis points (bps) and 30 bps. Further, the company estimates adjusted operating income of $160-$165 million compared with $150-$165 million mentioned earlier. Management also raised the lower end of the bottom-line view for 2018. It now expects adjusted earnings of 21-22 cents per share compared with 19-22 cents stated previously.
For 2019, the company anticipates gross margin to rise 60-80 bps, backed by channel mix gains, increased direct-to-consumer sales and favorable product costs. Additionally, operating income is expected to be $210-$230 million while earnings are anticipated to be 31-33 cents. For the international business, the company predicts a low-double-digit percentage increase in 2019. Considering these aspects, revenues are expected to rise 3-4%.
We expect all the aforementioned factors to continue bolstering the company’s performance and help it remain in investors’ good books.
Other Key Picks
Some other top-ranked stocks in the same industry are G-III Apparel Group, Ltd. (GIII - Free Report) , Crocs, Inc. (CROX - Free Report) and Lululemon Athletica Inc. (LULU - Free Report) .
G-III Apparel outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs has a long-term earnings growth rate of 15% and a Zacks Rank #1.
Lululemon delivered average positive earnings surprise of 19.5% in the trailing four quarters. It currently carries a Zacks Rank #2.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>