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 second-quarter 2012 financial results on July 24, 2012. The current Zacks Consensus Estimate for the quarter stands at 5 cents a share, reflecting an estimated year-over-year decrease of about 16.7%. Revenue, as per the Zacks Consensus Estimate, is $359 million.

First-Quarter Overview

Under Armour’s quarterly earnings of 28 cents a share beat the Zacks Consensus Estimate of 24 cents, and jumped from 23 cents earned in the prior-year quarter. Under Armour’s net revenue came in at $384.4 million, up 22.9% from the year-ago quarter, and surpassing the Zacks Consensus Estimate of $379 million.

Agreement of Estimate Revisions

During the last 30 days, 5 out of 22 estimates have been revised upwards, while 4 were lowered for the upcoming quarter. Moreover, for fiscal 2012, story remains more or less same with 6 estimates (out of 23) being revised upward, while 3 moved in the opposite direction.

In the last seven days, 2 out of 22 estimates have been revised upwards, while an equal number of estimates were lowered for the second quarter. Moreover, for fiscal 2012, 4 estimates (out of 23) made an upward revision, while 1 moved in the opposite direction.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the quarter remained stable over the last 30 days. The analysts remain constructive on the stock based on the company’s growth potential and brand strength. However, margins are expected to remain soft on account of increased input costs and markdowns.

Positive Surprise History

With respect to earnings surprises, Under Armour has topped the Zacks Consensus Estimate over the last four quarters in the range of 2.4% to 20%. The average remained at 10.6%, indicating that the company has surpassed the Zacks Consensus Estimate by the same magnitude 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 advertising while cautiously controlling the distribution of its products.

The company 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.

However, near-term issues like rising inventory levels, higher input costs and markdowns could possibly limit its future growth prospects and weaken its product margin levels.

Currently, Under Armour, which competes with Nike Inc. ( NKE - Analyst Report ) and Columbia Sportswear Company ( COLM - Snapshot Report ) , holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.