Earnings Preview: Under Armour

Under Armour Inc. (UA - Snapshot Report), one of the leading developers, marketers and distributors of branded sports apparel, footwear and accessories, is slated to report its fourth-quarter 2011 financial results on January 26, 2012. The current Zacks Consensus Estimate for the quarter is 60 cents per share. Revenue as per the Zacks Consensus Estimate is $402 million.

Third-Quarter 2011, a Synopsis

Under Armour posted better-than-expected third-quarter 2011 results. The quarterly earnings of 88 cents per share soared 29.4% from 68 cents earned in the prior-year quarter. The quarterly earnings included a gain of 4 cents due to the tax planning strategies undertaken by the company.

Excluding this benefit, earnings came in at 84 cents. The Zacks Consensus Estimate for the quarter was 83 cents a share.

Under Armour’s net revenue for the quarter came in at $465.5 million, up 41.7% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $445 million.

The strong results came on the heels of healthy apparel, footwear, accessories and direct-to-consumer businesses, enabling management to provide an upbeat outlook.

Under Armour expects fiscal 2011 net revenue between $1,460 million and $1,470 million, representing an increase of 37% to 38%, and operating income between $159 million and $162 million, reflecting a growth of 42% to 44% over the prior year.

Management also provided initial outlook for FY12, and indicated that it expects revenue and operating growth to achieve the higher end of the long-term guidance range of 20% to 25%.

Fourth-Quarter 2011 Zacks Consensus

The analysts considered by Zacks, expects Under Armour to post fourth-quarter 2011 earnings of 60 cents per share. The current Zacks Consensus Estimate reflects a growth of 36.4% from the prior-year quarter’s earnings. The current Zacks Consensus Estimate for the quarter ranges between 57 cents and 67 cents.

Zacks Agreement & Magnitude

Of the 21 analysts covering the stock, 5 analysts revised their estimates downwards in the last 7 days, while none of the analysts revised their estimates in the upward direction. The analysts believe that unseasonably warm weather is likely to impact the company’s fourth-quarter sales as the winter assortments form an important part of sales during the fourth quarter.

Thus, the Zacks Consensus Estimate came down by a penny over the last 7 days.

Positive Earnings Surprise History

With respect to earnings surprises, Under Armour has topped the Zacks Consensus Estimate over the last four quarters in the range of 1.2% to 33.3%. The average remained at 18.6%, indicating that the company has outperformed the Zacks Consensus Estimate by an average of 18.6% in the trailing four quarters.

Our Take

Under Armour maintains strict control over its brand image, with an in-house marketing and promotions department, engaged in designing and producing all advertising campaigns while cautiously controlling the distribution of its products.

Under Armour offers substantial growth opportunities in the long term through geographic, product/category and direct-to-consumer expansion. Based on Under Armour’s well established brand for technical product, we expect the company to continue to benefit from longer-term shifting trends toward performance based products within the industry.

Further, Under Armour has significant long-term top-line potential given its loyal customer base and relatively small revenue base.

However, going ahead potential gross margin pressure incited by bulging inventories and rising costs remain a matter of concern. Under Armour, which competes with Nike Inc. (NKE - Analyst Report),  holds a Zacks #3 Rank, which translates into a short-term Hold rating.

Read the full analyst report on UA

Read the full analyst report on NKE